New Zealand Dollar holds gains following China Trade Balance data
- NZD/USD rises as the New Zealand Dollar rallies on China’s widening May Trade Surplus of CNY723.98 billion.
- China's May Trade Surplus beat expectations, widening to $105.43 billion against the projected $92.1 billion.
- The US Dollar may rise on Middle East ceasefire uncertainty after Netanyahu warned the war against Iran and Hezbollah isn't over.
NZD/USD remains stronger for the second successive day, trading around 0.5830 during the early European hours on Tuesday. The pair appreciates as the New Zealand Dollar (NZD) receives support from China's Trade Balance data, which, in Chinese Yuan (CNY) terms, arrived at CNY723.98 billion for May, widening from the previous figure of CNY585.69 billion. Exports rose 13.8% YoY in May vs. 9.8% in April. The country’s imports climbed 21.5% YoY in the same period vs. 20.6% previously.
In US Dollar terms, China's Trade Surplus widened far more than anticipated in May, reaching $105.43 billion against an expected $92.1 billion and a previous reading of $84.82 billion. This strong performance was driven by a robust acceleration in both trade segments: year-over-year exports surged by 19.4%, easily beating the 15.0% consensus, while imports jumped 27.4%, outpacing the projected 25.0% growth rate.
The NZD/USD pair gains ground as the US Dollar (USD) loses ground after Iran and Israel agreed to halt mutual attacks. The de-escalation came after an appeal from US President Donald Trump, boosting hopes that peace negotiations could move forward.
However, the US Dollar may regain ground amid uncertainty surrounding the Middle East ceasefire. Israeli Prime Minister Benjamin Netanyahu stated the war against Iran and its Lebanon-based proxy, Hezbollah, "has not yet ended," though he insisted both entities are weaker than ever. Netanyahu’s remarks followed a statement from Iran’s military confirming it had ceased strikes against Israel. Nevertheless, Iran’s central military command issued a stern warning, declaring that if Israel continues its attacks, including those in southern Lebanon, "much harsher and more crushing actions than before will be on the way."
The ongoing geopolitical friction, combined with strong US jobs data, has fueled inflation fears and heightened expectations of Federal Reserve rate hikes. According to the CME FedWatch tool, traders have raised the probability of a December quarter-point rate hike to 43%, up from 14% a month ago. The market is now bracing for Wednesday's US Consumer Price Index (CPI) and Thursday's Producer Price Index (PPI) data to gauge the Fed's next move.
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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