NZD/USD gathers strength to above 0.5950 ahead of US PPI release
- NZD/USD strengthens to around 0.5965 in Wednesday’s Asian session.
- The upbeat Chinese Q2 GDP data support the China-proxy NZD.
- Fed's Logan saw holding rates steady a while longer.
The NZD/USD pair attracts some buyers to near 0.5965, snapping the three-day losing streak during the early Asian session on Wednesday. The better-than-expected China Gross domestic product (GDP) report provides some support to the China-proxy Kiwi. Investors will keep an eye on the US Producer Price Index (PPI) later on Wednesday, along with the Fed Beige Book and Industrial Production.
The Chinese economy grew 5.2% YoY in the April-June quarter from a year earlier, compared to 5.4% in Q1, according to the National Bureau of Statistics (NBS) on Tuesday. This figure came in higher than the estimation of 5.1%. Additionally, the Chinese Gross Domestic Product (GDP) rate rose 1.1% QoQ in Q2 after advancing 1.2% in the previous quarter, above the market consensus of 0.9%.
China has avoided a sharp economic slowdown due to policy support and factories taking advantage of a US-China trade truce to front-load shipments. This, in turn, might underpin the China-proxy Kiwi in the near term, as China is a major trading partner of New Zealand.
The United States (US) and China have until 12 August to renew that agreement or face a return to the painful bilateral tariffs that risked introducing a virtual embargo on trade between the world’s two biggest economies. Any signs of renewed trade tensions could drag the NZD lower against the US Dollar (USD).
On the USD’s front, the cautious stance of the US Federal Reserve (Fed) could lift the Greenback and act as a headwind for the pair. Dallas Fed Bank President Lorie Logan said on Tuesday that the Fed will probably need to leave interest rates where they are for a while longer to ensure inflation stays low in the face of upward pressure from the Trump administration's tariffs. Financial markets expect the US central bank to stay on hold at the July meeting and then reduce by a quarter percentage point in September.
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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