NZD/USD holds below 0.6100 as China's services sector grows less than expected in June
- NZD/USD softens to around 0.6080 in Thursday’s Asian session.
- China’s Caixin Services PMI declined to 50.6 in June, weaker than expected.
- US June private payrolls posted the first decline in more than two years.
The NZD/USD pair loses traction to near 0.6080 during the Asian trading hours on Thursday. The New Zealand Dollar (NZD) weakens against the US Dollar (USD) after the disappointing Chinese economic data. The US Nonfarm Payrolls (NFP) data for June will be the highlight later on Friday.
Data released by Caixin on Thursday showed that the Services Purchasing Managers Index (PMI) declined to 50.6 in June, compared to 51.1 in May. This figure came in weaker than the expectation of 51.0. The downbeat Chinese economic data exerts some selling pressure on the Kiwi, as China is a major trading partner of New Zealand.
The Reserve Bank of New Zealand is widely expected to pause its easing cycle at its July meeting next week. The RBNZ has already cut rates by 225 basis points (bps) to 3.25%. Policymakers suggested that interest rates are now in the neutral zone, and they want to wait to see the impact of past cuts.
On the USD’s front, the weaker-than-expected US job reports have supported market expectations of a Federal Reserve (Fed) interest rate cut this year. This, in turn, might drag the Greenback lower and create a tailwind for NZD/USD. According to the CME FedWatch tool, short-term interest-rate futures are now pricing in nearly a one-in-four chance of a rate cut by the July meeting after the dovish comments, up from less than one-in-five from earlier.
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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