NZD/USD softens to below 0.5950 amid cautious trades
- NZD/USD weakens to near 0.5925 in Thursday’s Asian session, down 0.42% on the day.
- The US PPI was flat in June, below the forecast.
- The upbeat Chinese GDP data could support the China-proxy Kiwi, but the RBNZ’s dovish tone might cap its upside.
The NZD/USD pair attracts some sellers to around 0.5925 during the Asian trading hours on Thursday. The cautious trades and the prospect of the US Federal Reserve (Fed) maintaining its current interest rates underpin the US Dollar (USD) against the New Zealand Dollar (NZD). The US June Retail Sales will take center stage later on Thursday.
Data released by the US Bureau of Labor Statistics on Wednesday revealed that the US Producer Price Index (PPI) was unexpectedly unchanged in June. This figure came in below the market consensus of 0.2%. Meanwhile, the PPI ex food & energy rose by 2.6% YoY in June versus 3.0% prior, softer than the expectations of 2.7%.
Traders expect the US Federal Reserve (Fed) will leave its benchmark overnight interest rate unchanged in the 4.25%-4.50% range at its July policy meeting due to the tariff uncertainty triggered by US President Donald Trump. Fed officials said they remain cautious about the impact tariffs will have on inflation and believe the US economy is in the right position now that they can wait to see the impacts before making the next move.
China has avoided a sharp economic slowdown due to policy support, which might support the China-proxy Kiwi, as China is a major trading partner of New Zealand. However, the dovish stance of the Reserve Bank of New Zealand (RBNZ) could weigh on the NZD. The RBNZ is widely expected to deliver more rate cuts in the upcoming meetings, driven by the subdued activity in both the manufacturing and services sectors.
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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