NZD/USD holds positive ground above 0.6000 amid trade optimism
- NZD/USD gains ground to around 0.6035 in Friday’s early Asian session.
- US flash Manufacturing PMI dropped to 49.5 in July; Services PMI improved to 55.2.
- US and China to discuss tariff deadline extension next week.
The NZD/USD pair attracts some buyers to near 0.6035 during the early Asian trading hours on Friday. Optimism surrounding fresh US trade deals provides some support to the New Zealand Dollar (NZD) against the Greenback. Later on Friday, US Durable Goods Orders for June will be published.
The US Dollar (USD) edges lower amid mixed results from the US docket. US flash Manufacturing PMI declined to 49.5 in July from 52.0 in June, S&P Global showed on Thursday. This figure came in weaker than the 52.5 expected. Meanwhile, the Services PMI rose to 55.2 in July from 52.9, stronger than estimates. Finally, the Composite PMI climbed to 54.6 in July versus 52.9 prior.
The Federal Open Market Committee (FOMC) will meet next week and is anticipated to hold the rate steady as policymakers prefer to wait for clarity on the expected impact of tariffs on inflation. According to CME's FedWatch tool, markets are now pricing in nearly a 60% odds of a quarter-point September rate cut from the Federal Reserve (Fed).
US Treasury Secretary Scott Bessent is set to meet with Chinese officials in Stockholm next week to discuss extending the deadline for trade negotiations. Tariffs might return to 145% on the US side and 125% on the Chinese side in the absence of a trade deal or discussion extension. Any signals of rising trade tensions might undermine the China-proxy Kiwi, since China is a significant trading partner for New Zealand.
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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