New Zealand holds gains near 0.5900 despite weaker China PMI data
- NZD/USD strengthens around 0.5890 in Monday’s early Asian session.
- China’s RatingDog Manufacturing PMI eased to 50.9 in July, weaker than expected.
- Trump said Iran talks would begin on Monday.
The NZD/USD pair holds positive ground near 0.5890 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) remains firm despite the downbeat Chinese economic data. Traders will closely monitor the developments surrounding the US-Iran peace talks and await the release of the US ISM Manufacturing PMI data, which is due later on Monday.
Data released by RatingDog on Monday showed that China's RatingDog Manufacturing Purchasing Managers' Index (PMI) declined to 50.9 in July from 51.7 in June. This figure came in below the market consensus of 51.5. The weaker-than-expected PMI data has little to no impact on the China-proxy Kiwi.
Bloomberg reported on Monday that US President Donald Trump said that a new round of Iran talks would begin Monday afternoon after he cancelled a planned attack on Iran partially in response to pleas from US allies in the Middle East, including Saudi Arabia.
Nonetheless, Iranian officials said that Trump’s claim that Tehran had requested a pause “was nothing but a new lie” and that the Iranian armed forces were “on high alert and ready for any eventuality,” per Iran’s Mehr news agency.
Any progress on US-Iran talks could improve risk sentiment and lift the NZD against the USD. On the other hand, signs of escalating tensions in the Middle East could boost a safe-haven currency such as the Greenback and create a headwind for the pair.
Kiwi rate expectations climb as swaps curve nears RBNZ neutral range
Brown Brothers Harriman’s Elias Haddad highlights that market pricing has turned notably more hawkish, with the New Zealand swaps curve now “price in 60bps hikes by year-end and a total of 100bps of tightening over the next twelve months to 3.50% – near the top of the RBNZ estimated neutral range (2.20%-4.10%).” This reinforces the view that firmer domestic data and above-target inflation are feeding directly into expectations for a more aggressive RBNZ policy path.
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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