NZD/USD rises to above 0.6000 amid trade optimism
- NZD/USD trades in positive territory near 0.6025 in Wednesday’s early European session, up 0.40% on the day.
- Optimism for more Trump agreements lifts the riskier currency, like the New Zealand Dollar.
- The markets see 85% odds of an RBNZ cut in the August meeting.
The NZD/USD pair gathers strength to around 0.6025 during the early European session on Wednesday. The New Zealand Dollar (NZD) edges higher against the US Dollar (USD) due to the risk-on sentiment. The preliminary reading of US Purchasing Managers Index (PMI) reports for July will be in the spotlight later on Thursday.
In the latest development, a spokesperson from the Chinese embassy stated that both parties have finalized the implementation details of a prior agreement between US President Donald Trump and Chinese President Xi Jinping. Optimism for more agreements from Trump ahead of an impending tariff deadline boosts the market sentiment and provides some support to the Kiwi. Additionally, Trump on Wednesday posted on Truth Social that a tariff rate of 15% was set on imports from Japan, down from the 25% rate that was expected to take effect from August 1.
However, traders will keep an eye on a third round of high-level talks between the US and China next week. US Treasury Secretary Scott Bessent stated on Tuesday that he is likely to hash out an extension of Trump’s upcoming trade deadline with China when he meets with his Chinese counterparts in Stockholm next week. Any signs of renewed trade tensions or tariff uncertainty between the US and China could drag the China-proxy New Zealand Dollar lower as China is a major trading partner of New Zealand.
Consumer prices in New Zealand rose less than forecast in the second quarter (Q2), prompting the expectation of a rate reduction by the Reserve Bank of New Zealand (RBNZ) interest rate cut in August. This, in turn, might weigh on the NZD against the Greenback. Traders have priced in a nearly 85% possibility that the New Zealand central bank will cut the Official Cash Rate (OCR) by a further 25 basis points (bps) in the August meeting, according to Reuters.
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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