NZD/USD holds steady below 0.5750, US-China trade talks in focus
- NZD/USD flat lines around 0.5735 in Thursday’s early Asian session.
- Traders will keep an eye on the US-China trade talks later this week.
- A prolonged US government shutdown could drag the US Dollar lower.
The NZD/USD pair trades on a flat note near 0.5735 during the early European session on Thursday. The US Dollar (USD) steadies against the New Zealand Dollar (NZD) as traders remain on edge ahead of delayed US inflation data and upcoming US-China trade talks.
Reuters reported late Wednesday that the White House is considering a plan to curb an array of software-powered exports to China to retaliate against Beijing's latest round of rare earth export restrictions. US Treasury Secretary Scott Bessent said, "Everything is on the table." "If these export controls, whether it's software, engines or other things happen, it will likely be in coordination with our G-7 allies," added Bessent.
Traders will closely watch the US-China trade talks. US President Donald Trump said on Wednesday he expected to reach agreements with Chinese President Xi Jinping when they meet in South Korea next week. The talks could range from resumed soybean purchases by Beijing to limits on nuclear weapons.
The cautious mood in the markets or any signs of escalating trade tensions between the world’s two largest economies could weigh on the China-proxy Kiwi, as China is a major trading partner for New Zealand.
The US government shutdown has entered its 23rd day with no resolution in sight. The Senate is expected to vote again on a funding bill, though it's likely to fail. This marks the second-longest government shutdown in US history.
The release of key US economic data from the Bureau of Labor Statistics and the Census Bureau is suspended, complicating decision-making for the Federal Reserve (Fed). However, the Fed is anticipated to lower its key interest rate by 25 basis points (bps) on October 29 and again in December. This, in turn, undermines the USD and acts as a tailwind for the pair.
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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