NZD/USD slips toward 0.5700 despite uncertainty surrounding US economic outlook
- NZD/USD loses ground as traders assess the impact of the ongoing government shutdown, trade tensions, and monetary policy uncertainty.
- The US federal government shutdown has entered its third week, with no resolution in sight.
- The New Zealand Dollar may draw support from easing US-China tensions.
NZD/USD offers gains registered in the previous two successive sessions, trading around 0.5720 during the Asian hours on Tuesday. The pair depreciates as the US Dollar (USD) as traders evaluate the impact of the ongoing government shutdown, trade tensions, and monetary policy uncertainty on the US economic outlook.
However, the downside of the NZD/USD pair could be limited as the US Dollar may again lose ground amid the ongoing US government shutdown continues to weigh on the broader economic outlook. The US federal government shutdown has entered its third week, with no clear end in sight amid a partisan fight in the Senate over federal funding priorities. The shutdown is now the third-longest funding lapse in modern history.
Additionally, the increased likelihood of further rate cuts by the US Federal Reserve (Fed) by year-end puts downward pressure on the Greenback. The CME FedWatch Tool indicates that markets are now pricing in nearly a 99% chance of a Fed rate cut in October and a 98% possibility of another reduction in December.
The NZD/USD pair may gain ground as the New Zealand Dollar (NZD) could receive support from easing tensions between the United States (US) and China, New Zealand’s close trading partner. US President Donald Trump said that he expects to reach a “fair deal” with China’s President Xi Jinping during their upcoming meeting in South Korea, signaling a possible easing of trade tensions.
Traders may turn cautious amid prevailing disagreements over tariffs, technology, and market access remain unresolved ahead of the Trump-Xi scheduled meeting in South Korea next week. US Trade Representative Jamieson Greer accused Beijing of engaging in a “broader pattern of economic coercion” targeting companies making strategic investments in critical US industries.
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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