NZD/USD trades with positive bias near 0.6075-0.6080 area amid modest USD downtick
- NZD/USD regains positive traction as the post-NFP USD rally fades rather quickly.
- US fiscal concerns and a positive risk tone seem to undermine the safe-haven buck.
- The focus now shifts to Chinese inflation data and the RBNZ meeting next Wednesday.
The NZD/USD pair builds on the overnight bounce from the 0.6030 region, or the weekly trough, and gains some follow-through positive traction on Friday. Spot prices climb to the 0.6080 area during the early European session and for now, seem to have snapped a two-day losing streak amid a modest US Dollar (USD) weakness.
Traders dialled back expectations that the Federal Reserve (Fed) will cut interest rates in July following the release of stronger-than-expected US jobs data on Thursday. The initial market reaction, however, turns out to be short-lived amid concerns that US President Donald Trump's tax-cut and spending bill would further worsen America’s long-term debt problems. This, in turn, keeps the USD bulls on the defensive and acts as a tailwind for the NZD/USD pair.
Apart from this, the upbeat market mood is seen as another factor undermining the Greenback's relative safe-haven status and benefiting the risk-sensitive Kiwi. Meanwhile, the NZD/USD pair remains on track to register gains for the second straight week, though the uncertainty over Trump's trade policies could cap any further gains. Traders might also refrain from placing aggressive bets amid relatively thin trading volumes on the back of a US holiday.
The market focus now shifts to the release of Chinese inflation figures and the Reserve Bank of New Zealand (RBNZ) meeting next Wednesday, which will drive the New Zealand Dollar (NZD) and provide a fresh impetus to the NZD/USD pair. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of the USD bears and suggests that the path of least resistance for the currency pair remains to the upside.
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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