The spot rate on the New Zealand dollar (NZD) is NZD/USD 1.4286, and the 180-day forward rate is NZD/USD 1.3889. This difference means:
Interest rates are higher in the United States than in New Zealand. It takes fewer NZD to buy one USD in the forward market than in the spot market.
My question: Is the explanation stating that interest rates are higher currently at t=0 and with the stated spot rate?
It’s saying that the 180-day USD risk-free interest rate is higher than the 180-day NZD risk-free interest rate.
Hence that is why the NZD is priced to appreciate against the USD in the forward market? USDs are better served buying US risk-free bond than being valued more against the NZD?
Forward exchange rates have only one job: to prevent arbitrage.
If you exchange USD for NZD at the spot rate, invest in a risk-free NZD asset, then exchange NZD for USD at the locked-in (hence, risk-free) forward rate, you have to earn the same return (in USD) as you would have had you simply invested in a risk-free USD asset; otherwise, there would be an arbitrage opportunity.