NZD/USD treads water above 0.5650 after rejection at the 0.5670 area
- New Zealand Dollar's recovery from 0.5630 has been capped at 0.5670 om Thursday.
- Weak New Zealand employment data has increasecd concerns about the counry's economic outlook
- The US Dollar remains steady after upbeat US employment and services activity data.
The New Zealand Dollar is failing to capitalise on the increasing appetite for risk and a somewhat softer US Dollar, and trades without a clear bias on Thursday, as the reversal from 0.5670 highs has been contained above 0.5650 so far.
Kiwi trimmed some losses on Wednesday, bouncing up from seven-month lows at 0.5630 on Tuesday. Upside attempts, however, have been weighed by the downbeat New Zealand employment figures seen earlier this week, which have increased speculation that the RBNZ will be forced to cut rates further over the coming months.
New Zealand’s quarterly employment report revealed that job creation remained stagnant, at 0%, in Q3, against market expectations of a 0.1% increase. Beyond that, the Unemployment Rate increased to a nine-year high, at 5.3% from 5.2% in the previous quarter, boosting investors’ concerns about the country’s economic outlook.
The US Dollar, on the other hand, has eased from recent highs but remains fairly steady following the positive surprises from US ADP employment and ISM Services PMI figures released on Wednesday. These figures have provided further reasons for Federal Reserve hawks to keep interest rates unchanged at their December meeting and are likely to keep US Dollar bears at a bay.
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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