NZD/USD flat lines near 0.5700 after weaker Chinese PMI data
- NZD/USD holds steady around 0.5715 in Monday’s Asian session.
- China’s RatingDog Manufacturing PMI eases to 50.6 in October, weaker than expected.
- Fading hopes for more Fed rate cuts could boost the US Dollar.
The NZD/USD pair trades on a flat note near 0.5715 during the Asian trading hours on Monday. The potential upside for the New Zealand Dollar (NZD) seems limited after the downbeat China's Manufacturing Purchasing Managers' Index (PMI) data. Traders will take more cues from the US October ISM Manufacturing PMI data later on Monday.
Data released by RatingDog on Monday showed that China's RatingDog Manufacturing Purchasing Managers' Index (PMI) eased to 50.6 in October from 51.2 in September. This figure came in below the market consensus of 50.9. The weaker-than-expected Chinese PMI data could drag the China-proxy Kiwi lower as China is a major trading partner for New Zealand.
The Federal Reserve (Fed) delivered its second interest rate cut of the year, lowering the benchmark rate to between 3.75% and 4.00%. Chair Jerome Powell signaled that a further reduction in the policy rate at the December meeting is not a foregone conclusion, which traders now see only about a 63% possibility of a cut in December, down from 93% a week ago. The hawkish stance of the US central bank could lift the USD and act as a headwind for the pair.
Nonetheless, US-China trade optimism might provide some support to the NZD against the Greenback. US President Donald Trump and Chinese President Xi Jinping agreed to avoid escalation in their trade war last week. Trump decided to lower his tariff from 57% to 47% in exchange for China suspending export controls on its rare earths and increasing purchases of American soya beans.
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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