NZD/USD sticks to modest intraday gains below 0.5900 amid softer USD
- NZD/USD gains positive traction at the start of a new week amid a modest USD downtick.
- The mixed Chinese macro data do little to provide any meaningful impetus to spot prices.
- A weaker risk tone lends support to the safe-haven buck and caps the risk-sensitive Kiwi.
The NZD/USD pair attracts some dip-buyers during the Asian session on Monday amid a modest US Dollar (USD) weakness, though it seems to struggle to capitalize on the move beyond the 0.5900 mark.
Investors seem convinced that the Federal Reserve (Fed) will cut interest rates further amid signs of easing inflationary pressures and the likelihood that the US economy will experience several quarters of sluggish growth. Moreover, Moody's downgraded America's top sovereign credit rating by one notch, to "Aa1" on Friday, citing concerns about the nation's growing debt pile. This, in turn, keeps the USD bulls on the defensive and turns out to be a key factor acting as a tailwind for the NZD/USD pair.
Meanwhile, traders react little to mixed Chinese macro data released earlier today. The National Bureau of Statistics (NBS) reported on Monday that China’s Retail Sales rose by 5.1% year-over-year (YoY) in April, falling short of the 5.5% forecast and down from 5.9% in March. Industrial Production grew by 6.1% YoY during the same period, beating the expected 5.5%, while Fixed Asset Investment rose 4.0% year-to-date (YTD) YoY in April, below the 4.2% forecast and March’s reading.
The data does little to provide any meaningful impetus, though the optimism over the US-China trade truce continues to lend support to antipodean currencies, including the Kiwi. The upside for the NZD/USD pair, however, remains capped in the wake of a turnaround in the global risk sentiment, which is holding back the USD bears from placing aggressive bets. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further appreciating move for the major.
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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