When we are looking at the supply and demand for NZD in the foreign exchange market, why do we label the price axis as "USD/NZD"?

In the foreign exchange market, currencies are quoted in pairs. The first currency listed is the base currency and the second is the quote currency. The price axis is labeled "USD/NZD" because it represents how many New Zealand dollars (NZD) you would need to buy one US dollar (USD).

Here are the steps to understand this:

1. The foreign exchange market operates on the principle of one currency being exchanged for another.

2. In the pair "USD/NZD", USD is the base currency and NZD is the quote currency. This means that the exchange rate you see will tell you how many NZD you need to buy one USD.

3. When we look at supply and demand for NZD, we are essentially looking at how many USD people are willing to exchange for each NZD.

4. Therefore, the price axis is labeled "USD/NZD" to reflect this relationship. If the value on the price axis increases, this means that the NZD is weakening against the USD (because you need more NZD to buy each USD). Conversely, if the value on the price axis decreases, this means that the NZD is strengthening against the USD (because you need fewer NZD to buy each USD).

5. This labeling of the price axis helps traders understand the relative strength or weakness of the NZD against the USD, which is crucial for making trading decisions.