NZD/USD rises to near 0.5900 following Building Permits, China’s Manufacturing PMI data
- NZD/USD appreciates as seasonally adjusted Building Permits rose 5.4% MoM in July, swinging from a previous decline of 6%.
- China’s Caixin Manufacturing Purchasing Managers’ Index climbed to 50.5 in August from 49.5 in July.
- The US Dollar weakens as markets increase bets on a Federal Reserve rate cut in September.
NZD/USD extends its gains for the third successive session, trading around 0.5900 during the early European hours on Monday. The pair appreciates as the New Zealand Dollar (NZD) holds gains following the release of seasonally adjusted Building Permits, which rose 5.4% month-on-month in July, following a previous decline of 6%.
Additionally, the New Zealand Dollar also gained support from a private survey indicating that China’s manufacturing sector unexpectedly returned to growth in August. The Caixin Manufacturing Purchasing Managers’ Index (PMI) rose to 50.5 in August from 49.5 in July. It is worth noting that any change in the Chinese economy could influence NZD as China is a close trading partner of Australia.
The NZD/USD pair also surges as the US Dollar (USD) struggles amid rising bets of an interest rate cut by the US Federal Reserve (Fed) in the September meeting. Traders are likely to await a slew of labor market releases this week that could shape the US Federal Reserve’s (Fed) policy decision in September. Key reports include ADP Employment Change, Average Hourly Earnings, and Nonfarm Payrolls for August.
San Francisco Fed President Mary Daly said on Sunday that policymakers will be ready to cut interest rates soon, adding that inflation stemming from tariffs will likely prove temporary, per Bloomberg. Traders are now pricing in more than 87% of a 25 basis points (bps) rate cut by the Fed at the September policy meeting, up from an 84% chance a week ago, according to the CME FedWatch tool.
CNN reported on Friday that 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.
However, US Trade Representative Jamieson Greer said in a Fox News interview on Sunday that US President Donald Trump’s administration will likely continue negotiations with its trade partners despite the US court ruling.
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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