NZD/USD falls toward 0.5950 following Business NZ PMI, awaits UoM Consumer Sentiment Index
- NZD/USD loses ground as the Business NZ PMI falls to 49.9 in August.
- The US Dollar may lose ground due to the rising likelihood of three Fed rate cut bets by the end of 2025.
- Weaker US labor market conditions strengthen the case for multiple Fed rate cuts in 2025.
NZD/USD depreciates after registering around 1% gains in the previous two sessions, trading around 0.5960 during the early European hours on Friday. The pair loses ground as the New Zealand Dollar (NZD) struggles after the release of the Business NZ Performance of Manufacturing Index (PMI), which fell to 49.9 in August, slowing down from July’s 52.8. The report underscores that manufacturing has not yet achieved sustained growth after a prolonged downturn during 2023 and 2024.
The New Zealand Dollar may further face challenges on a dovish policy outlook from the Reserve Bank of New Zealand (RBNZ). RBNZ Governor Christian Hawkesby reaffirmed on Thursday that the central bank’s outlook for another 50 basis points cut to the Official Cash Rate (OCR) by year-end, noting that the pace of easing will depend on incoming data.
The US Dollar (USD) may also struggle as market expectations for three Federal Reserve (Fed) rate cuts this year increase after US Weekly Initial Jobless Claims climbed to their highest since October 2021. The release of the University of Michigan (UoM) Consumer Sentiment Index will be the highlight later on Friday.
The increased jobless claims, along with last week’s weak Nonfarm Payrolls report, overshadow a hotter-than-expected consumer inflation reading. It’s worth noting that when interest rates are low, investors often turn to non-yielding assets in pursuit of higher returns.
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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