The wrong question most NZ investors ask about the exchange rate

The NZD just had its worst monthly fall since December 2024. Then in the past few weeks it recovered 2.3%. A reader asked me last week whether they should wait for the kiwi to fall further before investing overseas.

It is a reasonable question. It is also the wrong one.

Here is why, and what you should be asking instead.

What people actually mean when they ask about timing the exchange rate

When someone asks "should I wait for a better rate?", they usually mean one of two things.

The first is that they want to buy overseas assets cheaply in NZD terms. A lower NZD means overseas investments cost more NZD to buy, so a rising NZD feels like a better entry point.

The second is that they have read Issue 10 and understand that a falling NZD boosts unhedged overseas returns - and they want to position themselves to benefit from future NZD weakness.

Both of these are currency timing. And currency timing is hard. Not because the data is unavailable, but because currencies move on things that cannot be predicted.

The NZD is currently sitting around 0.578 USD. A year ago it was around 0.612 USD. Six weeks ago it was at 0.567 USD - its lowest in seven months. This week it is up from there. Where it goes next is genuinely uncertain, and anyone who tells you otherwise is either guessing or selling something.

The actual problem with waiting

Let us say you have $20,000 sitting in a savings account waiting for the "right" exchange rate before you invest it overseas.

The NZD is at 0.578. You are waiting for 0.60 - a level you remember from last year and think might return.

A few things could happen.

The NZD recovers to 0.60. You invest. But the recovery in the kiwi means the NZD price of overseas assets is now lower - your $20,000 buys fewer units of the fund than it would have six weeks ago at 0.567. You got the rate you wanted but the window for cheap overseas assets had already closed.

The NZD does not recover to 0.60. It stays range-bound between 0.56 and 0.58 for the next year. While you wait, global markets return 10%. You missed the return. The exchange rate turned out to be irrelevant.

The NZD falls further to 0.54. You feel vindicated about not investing yet. But now you are scared the kiwi might fall to 0.50 and you still do not invest.

In each of these scenarios, the cash sitting in savings is earning 4-5% while you wait. That is not nothing. But against an unhedged international equity fund returning 10-12%, it matters.

The real cost of waiting is not the exchange rate. It is time out of the market.

What dollar-cost averaging actually solves

Dollar-cost averaging means investing a fixed amount on a regular schedule - regardless of what the exchange rate or market is doing. Monthly contributions to an InvestNow or Kernel account are the most common version for NZ investors.

The reason it solves the exchange rate timing problem is not complicated. If you invest the same dollar amount each month, you naturally buy more units when the NZD is high (overseas assets are cheaper in NZD) and fewer units when the NZD is low (overseas assets are more expensive). The averaging effect removes the need to predict the rate.

This is the single most practical thing most NZ investors can take from the entire currency timing discussion: set up a regular contribution and stop watching the exchange rate.

The case for investing when the NZD is weak

There is a version of the currency timing argument that has some logic to it, and it is worth taking seriously before dismissing it.

When the NZD is at historically low levels - say, below 0.55 against the USD - the case for putting a larger-than-usual lump sum into unhedged overseas investments has some merit. Not because you can predict the NZD will recover, but because at very low levels the distribution of future outcomes is skewed toward a recovery. The NZD has averaged around 0.65 USD over the past decade and has never sustained a level below 0.50 for more than a very short period. Below 0.55, you are buying overseas assets at a natural discount.

The NZD at 0.578 is not historically low. It is below the long-run average, but not dramatically so. The case for a lump sum on pure currency grounds is not particularly strong right now.

What does that mean practically? Regular contributions remain the right approach for most investors at current levels. If the NZD were to fall significantly from here - back toward 0.54 or below - it might be worth thinking about whether to put a larger contribution in at that point. But that is a judgment call for a future issue, not a reason to sit on cash now waiting for a rate that may or may not arrive.

The honest answer to "should I wait for a better rate?"

No. Not because the exchange rate does not matter - it clearly does, as Issue 10 showed - but because you cannot know what "better" looks like until after it has happened.

The exchange rate is one variable in a much larger picture. The return of the underlying assets matters more over a long horizon. The time you spend invested matters more than the exact price you paid to get in. And the habit of regular investing matters more than any single entry point.

If you have money sitting in savings earmarked for overseas investment, the right question is not "what will the NZD do next?" It is "when should I have started investing this?" The answer is almost always some variation of "earlier than now."

Set up a regular contribution. Automate it if you can. Let the exchange rate average out over time. Stop checking the rate before you transfer.

That is the whole playbook.