New Zealand Dollar holds losses below 0.6000 despite upbeat Chinese Manufacturing PMI data
- NZD/USD softens to near 0.5975 in Monday’s early Asian session.
- China's RatingDog Manufacturing PMI fell to 51.8 in May, but was stronger than expected.
- Traders brace for the US Manufacturing PMI data on Monday ahead of the highly anticipated NFP report.
The NZD/USD pair holds losses around 0.5975 during the early Asian session on Monday. The New Zealand Dollar (NZD) remains weak following the Chinese economic data. Traders will keep an eye on the US ISM Manufacturing Purchasing Managers Index (PMI) report later in the day. On Friday, the US Nonfarm Payrolls (NFP) data will be in the spotlight.
Data released by RatingDog on Monday showed that China's RatingDog Manufacturing Purchasing Managers' Index (PMI) fell to 51.8 in May from 52.2 in April. This reading came in better than the market expectations of 51.4. However, this report has no impact on the China-proxy Kiwi.
Traders will closely monitor the Middle East developments. Signs of ongoing tensions between the US and Iran could weigh on the riskier assets, such as the NZD against the USD. Iranian Foreign Minister Abbas Araghchi said that talks and message exchanges with Washington were ongoing, but emphasized that no assessment of negotiations could be made until a clear outcome was reached.
Former Federal Reserve (Fed) Chair Jerome Powell said the US central bank would damage public trust that’s required to support a strong and stable economy if any president were free to dismiss Fed officials over policy disagreements, per Bloomberg.
The US employment data for May will take center stage later on Friday. The US Nonfarm Payrolls (NFP) is expected to see 96K jobs added in May, while the US Unemployment Rate is projected to remain steady at 4.3% during the same period. In case of stronger-than-expected outcomes, this could lift the Greenback and create a headwind for the pair.
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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