NZD/USD recovers some lost ground above 0.5650 despite a weak New Zealand jobs report
- NZD/USD rebounds to around 0.5665 in Thursday’s early Asian session.
- Weak New Zealand’s jobs report sealed the case for the RBNZ November cut.
- Fed’s Miran called for more rate cuts, despite a stronger-than-expected October ADP private payrolls report.
The NZD/USD pair recovers some lost ground to near 0.5665, snapping the five-day losing streak during the early Asian session on Thursday. Nonetheless, the potential upside for the New Zealand Dollar (NZD) might be limited after the country’s Unemployment Rate rose to the highest level since 2016. Traders will keep an eye on the Fedspeak later on Thursday.
New Zealand’s Unemployment Rate climbed to 5.3% in the third quarter (Q3), compared to 5.2% in Q2, Statistics New Zealand showed Wednesday. This figure aligned with the market consensus. Employment was unchanged from the previous three months, weaker than the estimated 0.1% increase.
The weak jobs report sealed the case for a rate cut from the Reserve Bank of New Zealand (RBNZ) this month, which exerted some selling pressure on the Kiwi. Most economists expect another 25 basis points (bps) reduction at the final meeting of the year on November 26.
The US Federal Reserve (Fed) lowered its benchmark rate by 25 bps at its October meeting last week. While Fed Governor Stephen Miran suggested that another rate cut could be appropriate in December, Fed Chair Jerome Powell signaled a more cautious approach, waiting for more data, which is complicated by the US government shutdown.
Meanwhile, the stronger-than-expected US economic data could provide some support to the Greenback and act as a headwind for the pair. Private sector employment in the US climbed by 42,000 in October, compared to the 29,000 decrease (revised from -32,000) seen in September, the Automatic Data Processing (ADP) showed Wednesday. This figure came in better than the estimations of 25,000. Additionally, the US ISM Services PMI rose to 52.4 in October, versus 50.0 prior and exceeding analysts’ forecasts of 50.8.
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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