NZD/USD recovers above 0.5900 as upbeat Chinese PMI data boost Kiwi

Source Fxstreet
  • NZD/USD trades on a stronger note around 0.5915 in Wednesday’s Asian session, up 0.17% on the day.
  • China's NBS Manufacturing PMI for July came in better than expected; Non-Manufacturing PMI was in line with the consensus. 
  • US Fed is widely expected to hold rate in the range of 5.25%-5.50% at its July meeting on Wednesday. 

The NZD/USD pair extends recovery near 0.5915 Asian trading hours on Wednesday. The pair edges higher after the stronger-than-expected Chinese Manufacturing Purchasing Managers' Index (PMI) data for July. Investors will shift their attention to the Federal Reserve’s (Fed) interest rate decision, which is scheduled for Wednesday.

Data released by the National Bureau of Statistics (NBS) on Wednesday showed that the country’s Manufacturing PMI declined to 49.4 in July from 49.5 in June, beating the expectations of 49.3. Meanwhile, the NBS Non-Manufacturing PMI dropped to 50.2 in July versus 50.5 prior, which is in line with the market consensus of 50.2. The better-than-expected Chinese PMI readings provide some support to the New Zealand Dollar (NZD) as China is a major trading partner of New Zealand.

However, the growing speculation for an early interest rate cut by the Reserve Bank of New Zealand (RBNZ) might cap the pair’s upside in the near term. Investors expect the RBNZ rate cuts, with traders pricing 14 basis points (bps) of cuts in August, indicating a 55% chance of a rate cut soon. 

On the USD’s front, the Fed will announce its interest rate decision later in the day, with no change in rate expected. Traders will closely watch Fed Chair Jerome Powell's remarks from the press conference as Fed officials might set the stage for an easing policy at its September meeting. Any dovish comments from Fed’s Powell might exert some selling pressure on the Greenback and create a tailwind for NZD/USD. Traders are now pricing in a 100% possibility of a Fed rate cut by at least a quarter percentage point in September, according to data from CME FedWatch Tool.

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.


 

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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