NZD/USD steadies above 0.6000 as US Dollar extends losses
- NZD/USD holds ground as the US Dollar weakens, with traders cautious ahead of delayed key economic data.
- US Nonfarm Payrolls are expected to show labor market stabilization in January, with 70,000 job gains and unemployment steady at 4.4%.
- New Zealand data were mixed, with decade-high unemployment despite strong jobs growth, reinforcing expectations against a near-term rate hike.
NZD/USD extends its gains for the second successive session, trading around 0.6020 during the European hours on Monday. The pair appreciates as the US Dollar (USD) declines, as traders adopt caution ahead of looming key economic data delayed by the partial government shutdown.
The January jobs report, due Wednesday, is expected to signal stabilization in the labor market, with the US Nonfarm Payrolls to add 70,000 jobs, while the Unemployment Rate is seen holding steady at 4.4%. The postponed January consumer price index reading is scheduled for Friday.
On Friday, after preliminary figures showed the Michigan Consumer Sentiment Index unexpectedly rose to a six-month high. The index increased to 57.3 in February, marking a third straight monthly gain and exceeding expectations of 55.0.
Markets widely expect the Fed to leave interest rates unchanged in March, with rate cuts likely in June and possibly September. San Francisco Fed President Mary Daly said on Friday that the economy may stay in a low-hiring, low-firing phase, though it could shift toward no hiring and higher layoffs.
New Zealand’s data released last week delivered mixed signals, with unemployment unexpectedly rising to a decade high even as employment growth beat expectations. The figures reinforce the view that a near-term rate hike is unlikely. However, inflation remains above target, and signs of firmer economic growth have kept expectations of an eventual policy tightening alive.
Markets are no longer fully pricing in a rate increase until October, with the implied probability of a September hike around 70%. The RBNZ’s first policy meeting under new Governor Anna Breman, scheduled for February 18, is widely expected to leave interest rates unchanged. The central bank will also publish updated economic and interest rate projections at the meeting.
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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