New Zealand Dollar remains firm above 0.5800 despite weak China GDP data
- NZD/USD gathers strength near 0.5825 in Wednesday’s Asian session.
- China’s economy in the second quarter grew at its weakest pace since 2022.
- Traders reduce their bets on a US rate hike as US inflation slowed more than expected in June.
The NZD/USD pair trades in positive territory around 0.5825 during the Asian trading hours on Wednesday. The New Zealand Dollar (NZD) remains firm against the US Dollar (USD) after the Chinese economic data. The attention will shift to the US June Producer Price Index (PPI) report later on Wednesday.
Data released by the National Bureau of Statistics (NBS) on Wednesday revealed that the Chinese economy expanded 4.3% YoY in the second quarter (Q2), compared to a 5.0% growth in the previous quarter, below the market consensus of 4.5%. This figure registered its weakest since 2022 and came below China’s full-year growth target range of 4.5% to 5.0%.
On a quarterly basis, the Chinese Gross Domestic Product (GDP) rate grew 0.9% in Q2 after advancing 1.3% in Q1, in line with the market consensus.
Additionally, China’s Retail Sales rose by 1.0% YoY in June, versus -0.6% prior, better than the estimations of -0.1%. Industrial Production came in at 5.3%, compared to 4.5% in May, stronger than the 4.6% expected. The mixed Chinese economic data have little to no impact on the China-proxy Kiwi.
On the USD’s front, traders reduce their bets on a July rate hike from the Fed after softer-than-expected US inflation data, undermining the Greenback and acting as a tailwind for the pair. The odds of a July rate increase dropped to 16% from 42% on Monday, according to the CME FedWatch tool, although the probability of a rate hike this year was more robust at 80%, down from 89% on Monday.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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