NZD/USD steadies near 0.5650 as China lifts tariffs, NZ jobs data weak
- NZD/USD recovers ground as China announces to lift tariffs on US agricultural products.
- New Zealand’s Unemployment Rate rose to 5.3%, while Employment Change stalled in Q3.
- Traders turn cautious as the US funding deadlock enters week six, nearing the longest lapse in history.
NZD/USD remains flat after experiencing volatility, trading around 0.5650 during the early European hours on Wednesday. The pair recovers its daily losses after China’s Finance Ministry announced that it will lift some tariffs on US agricultural products starting November 10. The ministry also said that the 24% tariffs on certain US goods will be suspended for one year, while the 10% tariffs will remain in place.
China's RatingDog Services Purchasing Managers' Index (PMI) fell to 52.6 in October from 52.9 in September. The data matched the market forecast of 52.6 in the reported period. Any change in the Chinese economy could impact the NZD as China is a major trading partner for New Zealand.
The NZD/USD pair weakened as the New Zealand Dollar (NZD) struggled after weaker domestic jobs data was released on Wednesday, which reinforced expectations of a rate cut by the Reserve Bank of New Zealand (RBNZ) in November.
New Zealand’s Unemployment Rate climbed to a nearly nine-year high of 5.3% in the third quarter, up from 5.2% in the previous quarter, as Employment Change stalled. Markets are fully pricing in a 25-basis-point rate cut at the RBNZ’s upcoming policy meeting and placed even odds on another reduction next year.
The US Dollar (USD) remains subdued amid the ongoing US government shutdown. Traders adopt caution as the deadlock has now entered its sixth week and is poised to become the longest federal funding lapse in US history after the Senate once again failed to pass a short-term funding bill. The most recent attempt to resolve the standoff, Republican-backed temporary legislation, was rejected by the Senate for the 14th time on Tuesday.
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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