NZD/USD holds gains above 0.5700 after rebounding from six-month lows
- NZD/USD rebounds from a six-month low of 0.5682 recorded on Tuesday.
- The New Zealand Dollar gains support as RBNZ’s Conway signals no plans to use additional monetary policy tools soon.
- Trump warned of new trade restrictions if China enforces rare earth export controls and higher port fees.
NZD/USD halts its six-day losing streak, rebounding from a six-month low of 0.5682 recorded in the previous session and currently trading around 0.5730 during the early European hours on Wednesday. The pair advanced as the New Zealand Dollar (NZD) gains ground following the comments from Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway, who stated that the central bank doesn’t expect to use additional monetary policy (AMP) tools again anytime soon.
RBNZ Chief Economist Conway also added that the neutral interest rate is constantly shifting, with rates around 2.5% sitting at the lower end of the neutral range. Conway added that the central bank is still “feeling its way” and has no plans to introduce new monetary policy tools, reaffirming that the Official Cash Rate (OCR) remains its primary policy instrument.
The NZD/USD pair remains stronger after the release of China’s softer Consumer Price Index (CPI) data, with annual inflation declining to 0.3% year-over-year (YoY) in September. The market consensus was for a 0.1% decline in the reported period, following a fall of 0.4% in August. Meanwhile, the monthly inflation rose to 0.1%, weaker than the expected 0.2%. China’s Producer Price Index (PPI) fell 2.3% YoY, following a 2.9% fall prior, as expected.
However, traders adopt caution after US President Donald Trump criticized China on Wednesday for its recent protectionist trade policies, threatening additional targeted trade restrictions if China goes ahead with imposing fresh rare earth mineral export controls and additional port fees for foreign container ships in Chinese ports.
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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