NZD/USD reaches six-month lows near 0.5600 due to dovish RBNZ policy outlook
- NZD/USD has recorded a six-month low of 0.5609 on Friday.
- The New Zealand Dollar loses ground amid expectations of further RBNZ policy easing in November.
- The US Dollar holds gains as market caution increases ahead of the flash Michigan Consumer Sentiment Index data.
NZD/USD extends its losses for the second successive session, trading at a six-month low of 0.5609 during the early European hours on Friday. The pair depreciates as the New Zealand Dollar (NZD) loses ground amid expectations of further policy easing from the Reserve Bank of New Zealand (RBNZ), with markets fully pricing in a 25-basis-point rate cut in November following a weak jobs report.
The NZD also loses ground as China's Trade Balance arrived at CNY640.4 billion for October, narrowing from the previous figure of CNY645.47 billion. Any change in the Chinese economy could impact the AUD as China is a major trading partner for New Zealand.
China's Exports fell 0.8% year-over-year (YoY) in October against 8.4% in September. Meanwhile, imports rose 1.4% YoY in the reported period vs. 7.5% recorded previously. In US Dollar (USD) terms, China’s Trade Surplus expanded less than expected in October. Trade Balance arrived at +90.07B versus +95.60B expected and +90.45 prior.
The downside of the NZD/USD pair could be restrained as New Zealand could receive some support from easing trade tensions between the world’s two largest economies United States (US) and China. Washington moves to suspend penalties on China’s shipbuilding sector. The Office of the United States (US) Trade Representative announced that it is seeking public input on a one-year suspension of tariffs on Chinese imports.
The US Dollar (USD) holds ground as traders adopt caution ahead of the preliminary Michigan Consumer Sentiment Index data on Friday, while the US government shutdown is delaying key data releases, including Nonfarm Payrolls (NFP) and the Unemployment Rate.
The US Dollar faced challenges as the Challenger Job Cuts report prompted the Federal Reserve (Fed) to lower interest rates at its December meeting. Fed funds futures traders are now pricing in a 67% chance of a cut in December, down from 62% a day ago, according to the CME FedWatch Tool.
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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