NZD/USD strengthens to near 0.5850 ahead of US NFP data
- NZD/USD gathers strength to near 0.5850 in Friday’s early Asian session, adding 0.14% on the day.
- US Initial Jobless Claims rose to 237K last week.
- The US August Nonfarm Payrolls report will be the highlight later on Friday.
The NZD/USD pair attracts some buyers to around 0.5850 during the early Asian session on Friday. The softer-than-expected US job data continue to weigh on the US Dollar (USD). All eyes will be on the US Nonfarm Payrolls (NFP) report for August, which is due later on Friday.
Data released by the US Department of Labour (DOL) on Thursday showed that Initial Jobless Claims for the week ending August 30 climbed to 237K, compared to the previous reading of 229K. This figure came in above the market consensus of 230K. Meanwhile, US private sector employment rose 54,000 in August, according to the Automatic Data Processing (ADP). This reading followed a 106K (revised from 104K) increase recorded in July and came in below the expectation of 65K.
These job reports suggested labor market weakness and reinforced expectations that the Federal Reserve (Fed) will cut rates this month, which undermines the Greenback and creates a tailwind for the pair. The attention will shift to the US employment report. The US economy is estimated to add 75K jobs in August, while the Unemployment Rate is projected to tick up to 4.3% in August. Any signs of a weakening labor market could drag the USD lower as it prompts bets on the Federal Reserve (Fed) to further unwind its restrictive policy.
However, the dovish policy expectations of the Reserve Bank of New Zealand (RBNZ) might undermine the Kiwi. The RBNZ has been aggressively cutting rates since August 2024 and signaled that further cuts could be coming. Analysts are currently expecting two more rate reductions from the New Zealand central bank, which would bring the Official Cash Rate (OCR) down to 2.50%, the lowest level since mid-2022.
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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