NZD/USD strengthens above 0.5900 after upbeat China's Caixin Manufacturing PMI data
- NZD/USD gathers strength to near 0.5905 in Monday’s Asian session.
- China's Caixin Manufacturing PMI unexpectedly rose to 50.5 in August, stronger than expected.
- Fed’s Daly said policymakers will be ready to lower interest rates soon.
The NZD/USD pair attracts some buyers to around 0.5905 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) strengthens against the US Dollar (USD) after China’s August Caixin Manufacturing Purchasing Managers Index (PMI) report. The US market is closed on Monday due to the Labor Day holiday.
Data released by Caixin Insight Group on Monday showed that China’s Manufacturing PMI rose to 50.5 in August from 49.5 in July. This figure came in better than the estimation of 49.5. This upbeat PMI report provides some support to the China-proxy Kiwi, as China is a major trading partner of New Zealand.
The fears of trade tensions between the United States and China might cap the upside for the NZD. Last week, US President Donald Trump warned of steeper tariffs on China if exports of rare-earth magnets were curbed, threatening a precarious trade truce between the world’s two largest economies.
Traders will closely monitor the developments surrounding US tariffs. On Friday, the US Court of Appeals for the Federal Circuit upheld a ruling that the sweeping tariffs the US President Donald Trump unilaterally imposed on most other countries were illegal. The decision impacts Trump's so-called "reciprocal" tariffs on most nations across the globe, including additional levies placed on China, Mexico, and Canada.
Markets expect the Fed to resume lowering its benchmark interest rate in the September meeting. Fed Governor Christopher Waller on Thursday reiterated his support for a cut, saying he would entertain a larger move if labor market data continue weakening. Meanwhile, Francisco Fed President Mary Daly said that policymakers will be ready to cut the interest rates soon, adding that inflation stemming from tariffs will likely prove temporary.
The US Personal Consumption Expenditures (PCE) report released on Friday showed that US inflation held steady in July but remained above the US central bank's 2% target. The data, which was in line with expectations, has increased market odds for an interest rate cut by the Fed this month, which could weigh on the USD.
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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