NZD/USD holds losses below 0.5800, as US government set to shutdown
- NZD/USD remains subdued despite improved Building Permits, which increased 5.8% MoM in August.
- US federal government funding will lapse at 04:00 GMT on Wednesday, triggering a government shutdown.
- The US Dollar could face further losses as recent US jobs data increased the odds of further Fed rate cuts.
NZD/USD holds losses after registering gains in the previous session, trading around 0.5790 during the Asian hours on Wednesday. The pair holds little losses as the New Zealand Dollar (NZD) struggles following the release of seasonally adjusted Building Permits, which increased 5.8% month-on-month in August, following the previous rise of 5.3% (revised down from 5.4%).
The NZD/USD pair also struggles as US federal government funding is set to expire at 04:00 GMT on Wednesday, leading to a government shutdown. Around 750,000 federal employees are facing furlough after Congress failed to pass funding bills. The US Labor Department said Monday that its statistics agency would suspend data releases, including Friday’s closely watched monthly jobs report, if a partial shutdown occurs.
The downside of the NZD/USD pair could be limited as the US Dollar (USD) remains subdued after soft US jobs data increased the odds of Federal Reserve (Fed) rate cuts. The CME FedWatch Tool suggests that markets are now pricing in nearly a 97% chance of a Fed rate cut in October and a 76% possibility of another reduction in December.
The latest Job Openings showed the labor market is slowing, yet vacancies rose from 7.21 million to 7.23 million in August. Meanwhile, the hiring rate edged down to 3.2%, the lowest level since June 2024, while layoffs remained at a low level.
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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