NZD/USD holds above 0.5900 on upbeat Chinese PMI data
- NZD/USD posts modest gains around 0.5905 in Tuesday’s early Asian session.
- Markets expect the Fed to cut the interest rate in the September meeting.
- China’s August Caixin Manufacturing PMI supports the New Zealand Dollar.
The NZD/USD pair trades in positive territory near 0.5905 during the early Asian session on Tuesday. The upbeat China’s August Caixin Manufacturing Purchasing Managers Index (PMI) report provides some support to the Kiwi. Traders await the US August ISM Manufacturing PMI report, which is due later on Tuesday.
The US Commerce Department noted on Friday that US inflation, as measured by the Personal Consumption Expenditures (PCE), rose in July, indicating that US President Donald Trump’s tariffs are working their way through the US economy. However, markets expect the Federal Reserve (Fed) to resume lowering its benchmark interest rate this month. This, in turn, might drag the US Dollar (USD) lower and create a tailwind for the pair.
China’s Manufacturing PMI rose to 50.5 in August from 49.5 in July, according to Caixin Insight Group on Monday. This figure came in better than the estimation of 49.5. This encouraging China PMI report underpins the China-proxy Kiwi, as China is a major trading partner of New Zealand.
Meanwhile, trade uncertainty might cap the New Zealand Dollar’s (NZD) upside. Traders will closely monitor the developments surrounding US tariffs. On Friday, the US Court of Appeals for the Federal Circuit upheld a ruling that the sweeping tariffs the US President Donald Trump unilaterally imposed on most other countries were illegal.
The decision impacts Trump's so-called "reciprocal" tariffs on most nations across the globe, including additional levies placed on China, Mexico, and Canada.
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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