NZD/USD inches lower to near 0.6000 ahead of US Durable Goods Orders data
- NZD/USD struggles as recent jobless claims data has bolstered the likelihood of the Fed keeping rates unchanged at next week.
- The New Zealand Dollar may regain its ground due to improved market sentiment.
- Markets are pricing in a 75% chance that the RBNZ will deliver a 25 basis point rate cut in August.
NZD/USD loses ground for the second successive day, trading around 0.6020 during the early European hours on Friday. The pair depreciates as the US Dollar (USD) gains ground, possibly driven by the recent United States (US) jobless claims data, which has bolstered the likelihood of the Federal Reserve (Fed) keeping interest rates unchanged at next week’s meeting. Markets are now pricing in fewer than two rate cuts for the year, with the first fully expected in October. US Durable Goods Orders for June will be eyed later in the day.
The US Initial Jobless Claims fell to 217,000 last week, down from 227,000 and 221,000 in the prior weeks. This marks the sixth consecutive weekly decline, the longest streak since 2022, underscoring the resilience of the labor market.
The preliminary S&P Global US Composite Purchasing Managers Index (PMI) data rose to 54.6 in July, up from 52.9 in June, signaling the fastest pace of overall business activity in seven months. The Services PMI rose to 55.2, beating expectations of 53.0 and reflecting solid demand in the services sector. However, the Manufacturing PMI dropped to 49.5, down from a prior reading of 52.0 and below the forecast of 52.5, slipping into contraction territory.
However, the NZD/USD pair may regain its ground amid improved market sentiment, driven by recent United States (US) trade developments with the European Union (EU) and Japan. Traders further monitor developments in the US-China trade talks. US Treasury Secretary Scott Bessent announced earlier this week that American and Chinese officials will meet in Stockholm next week for a third round of high-level talks.
Markets are pricing in a roughly 75% probability that the Reserve Bank of New Zealand (RBNZ) will cut its 3.25% cash rate by 25 basis points at its August meeting. Meanwhile, RBNZ Chief Economist Paul Conway stated on Thursday that the central bank is prepared to lower rates further if inflationary pressures continue to ease as expected.
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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