NZD/USD weakens below 0.6000 ahead of PBOC rate decision
- NZD/USD edges lower to around 0.5990 in Friday’s early Asian session.
- Rising geopolitical tensions boost the US Dollar, a safe-haven currency.
- The upbeat New Zealand's GDP data might cap the Kiwi’s downside.
The NZD/USD pair loses ground to near 0.5990 during the early Asian session on Friday. The US Dollar (USD) strengthens against the New Zealand Dollar (NZD) amid rising fears over a potential spread of the conflict in the Middle East. Traders brace for the People’s Bank of China’s (PBoC) interest rate decision and the US Philly Fed Manufacturing Index later on Friday.
The conflict between Israel and Iran has entered its seventh day as two countries carried out further air attacks on Thursday. White House spokeswoman Karoline Leavitt said that US President Donald Trump will decide within two weeks whether to strike Iran. Concerns over potential US involvement in the Israel-Iran air war boost the safe-haven flows, benefitting the Greenback.
The US Federal Reserve (Fed) left its key borrowing rate unchanged in a range between 4.25%-4.50% at its June meeting on Wednesday. Fed officials retained projections for two quarter-point rate reductions this year.
Fed Chair Jerome Powell signaled a cautious note about further easing ahead, saying that he expects "meaningful" inflation ahead as a result of Trump's aggressive trade tariffs. The hawkish tone from the Fed contributes to the USD’s upside and creates a tailwind for the pair in the near term.
On the other hand, the stronger-than-expected New Zealand’s Gross Domestic Product (GDP) report might help limit the Kiwi’s losses. New Zealand's economy grew faster than expected in the first quarter (Q1), rising by 0.8% QoQ versus 0.5% prior (revised from 0.7%). This reading came in above the market consensus of 0.7%.
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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