NZD/USD remains weak near 0.5900 despite upbeat Chinese Services PMI data
- NZD/USD softens to around 0.5900 in Tuesday’s Asian session.
- China’s Caixin Services PMI unexpectedly jumped to 52.6 in July, stronger than expected.
- The US ISM Services PMI for July will be in the spotlight later on Tuesday.
The NZD/USD pair trades in negative territory near 0.5900 during the Asian trading hours on Tuesday. The New Zealand Dollar (NZD) remains weak against the US Dollar (USD) despite the upbeat Chinese economic data. The attention will shift to the US ISM Services Purchasing Managers Index (PMI), which will be published later on Tuesday.
Data released by Caixin on Tuesday showed that China's Services Purchasing Managers' Index (PMI) unexpectedly climbed to 52.6 in July from 50.6 in June. This figure came in stronger than the expectations of 50.2. However, the upbeat Chinese data fails to boost the China-proxy Kiwi as traders remain focused on the trade negotiations between the USA and China.
US Treasury Secretary Beseent said that an extension of the trade truce between the world's two leading economies is "likely," but markets remain cautious ahead of the August 12 deadline. Any signs of escalating trade tensions between the US and China could exert some selling pressure on the NZD, as China is a major trading partner of New Zealand.
On the USD’s front, the weaker-than-expected US July Nonfarm Payrolls (NFP), along with the unexpected resignation by Federal Reserve (Fed) Governor Adriana Kugler, might weigh on the Greenback and create a tailwind for the pair. Fed funds futures traders ramped up bets on rate cuts after the downbeat US economic data. According to the CME FedWatch tool, markets are now pricing in nearly an 84% possibility that the Fed will cut rates by 25 basis points (bps) in the September meeting.
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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