NZD/USD gains ground to near 0.5900 ahead of Chinese PMI releases
- NZD/USD strengthens to near 0.5900 in Thursday’s early Asian session.
- The Fed held rates steady for the fifth straight time on Wednesday.
- Traders brace for China’s July NBS PMI reports for fresh impetus, which are due later on Thursday.
The NZD/USD pair gathers strength to around 0.5900, snapping the five-day losing streak during the early Asian session on Thursday. The US Dollar (NZD) weakens against the New Zealand Dollar (NZD) after the Federal Reserve (Fed) decided to keep rates unchanged. Later on Thursday, China’s National Bureau of Statistics (NBS) Manufacturing PMI and Services PMI will be in the spotlight.
The Federal Open Market Committee (FOMC) voted 9-2 to hold its benchmark federal funds rate in a range of 4.25%-4.5% at its July meeting on Wednesday. Governors Christopher Waller and Michelle Bowman voted against the decision in favor of a 25 basis points (bps) rate cut.
Fed Chair Jerome Powell said during the press conference that interest rates are in the right place to manage continued uncertainty around tariffs and inflation, tempering expectations for a rate cut in September. Markets are now pricing in nearly a 60% chance of a Fed rate reduction at the next meeting in September, down from about 60% earlier in the day, according to the CME FedWatch tool.
Meanwhile, trade optimism and a possible extension of the US-China trade truce could provide some support to the China-proxy New Zealand Dollar (NZD) in the near term, as China is a major trading partner of New Zealand. US Treasury Secretary Scott Bessent said that the US and China will continue talks over maintaining a tariff truce before the deadline in two weeks, and Trump will make the final decision on any extension. Bessent tamped down any expectation of Trump rejecting the extension.
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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