New Zealand Dollar gathers strength above 0.5900 on stronger China PMI data
- NZD/USD strengthens to around 0.5915 in Monday’s early European session.
- China's Manufacturing PMI recovered to 49.8 in August, stronger than expected.
- Markets now see a 56.9% probability of a US rate hike in September.
The NZD/USD pair gains momentum to near 0.5915 during the early European trading hours on Monday. Better-than-expected Chinese economic data provides some support to the China-proxy New Zealand Dollar (NZD) against the US Dollar (USD).
China's Manufacturing Purchasing Managers' Index (PMI) improved to 49.8 in August, up from 49.2 in July, according to the latest data released by the National Bureau of Statistics (NBS) on Monday. This figure came in above the market consensus of 49.7. Meanwhile, the NBS Non-Manufacturing PMI held steady at 49.0 in August.
On the other hand, Federal Reserve (Fed) Chair Kevin Warsh's speech at the Jackson Hole Economic Symposium sent a strongly hawkish signal. This, in turn, might lift the Greenback and act as a headwind for the pair.
Warsh said on Friday that “While this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved.” Fed Chairman also signalled that further tightening may be needed to curb price pressure.
Bets among Fed funds futures traders that the Fed will raise interest rates in September rose to 56.9% on Friday, according to the CME FedWatch tool. That’s up from 39.9% before the speech.
The attention will shift to the incoming US economic data on Friday, including Nonfarm Payrolls (NFP) and the Unemployment Rate. These readings could shape expectations ahead of the September Fed meeting.
RBNZ seen keeping hawkish guidance as OCR stays within neutral range
Strategists at Brown Brothers Harriman expect the Reserve Bank of New Zealand to maintain a firm policy tone at the upcoming meeting, noting that the central bank is likely to reiterate that “further OCR increases appear likely at upcoming meetings” given that the Official Cash Rate “remains well within the bank’s neutral range estimate (2.20%-4.10%).” This guidance would be consistent with BBH’s view that ongoing above-target inflation and solid domestic growth warrant additional tightening, even as the policy rate is still judged to be within a neutral, rather than restrictive, zone.
Warsh flags unfinished inflation work as financial conditions stay loose
Fed Chair Warsh delivered a notably more hawkish-toned speech, with a FXS Speechtracker score of 7.4 versus a historical average of 6.5, underscoring that the Fed must be confident underlying inflation is moving to target or “we have work to do.” Warsh highlighted healthy consumer spending, stable labor markets, and rapid business investment while stressing that financial conditions are not restrictive and that recent better-than-expected summer inflation prints do not yet signal a meaningful change in underlying trends, keeping the predominant focus squarely on prices and the firm 2% PCE objective. The emphasis on durable yet fragile inflation expectations and loose credit conditions reinforces a bias toward further policy tightening if price stability progress stalls.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 129.70, consistent with solid hawkish positioning despite no incremental shift in the aggregate signal. This stable but high reading, alongside the above-baseline FXS Speechtracker score, suggests the Fed narrative remains firmly in hawkish territory, supportive of the Dollar on any data that questions the durability of current inflation improvements.
Technical Analysis: NZD/USD keeps a positive bias in the near term
In the daily chart, NZD/USD maintains a mildly bullish near-term bias as spot holds above the 100-day simple moving average (SMA) and the 20-day Bollinger middle band, keeping price anchored in the upper half of the recent range. The Relative Strength Index (14) at 54.4 sits just above neutral, hinting that buying pressure dominates but lacks the kind of momentum extension seen earlier in the month.
On the topside, the immediate obstacle is the upper Bollinger band near 0.5985, which caps the recent advance and marks the next resistance hurdle for bulls. On the downside, initial support is seen at the Bollinger middle band around 0.5910, ahead of a deeper cushion at the 100-day SMA near 0.5845, while the lower Bollinger band at 0.5835 adds to the same demand area should a corrective pullback gain traction.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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