NZD/USD bounces up from session lows and approaches 0.5800
- The New Zealand Dollar remains firm against the USD, hovering at five-month highs near 0.5800.
- Investors' expectations of further monetary easing by the Federal Reserve keep US Dollar rallies subdued.
- Markets remain calm on Thursday with all eyes on September's US PCE Prices Index release.
The New Zealand Dollar bears have been contained above the mid-range of the 0.5700s on Thursday, and the pair bounced up in the early European session, returning to levels five-month highs, near 0.5780.
The Greenback drew some support after the Chinese central bank set the midpoint of the USD/CNY floating band at a higher-than-expected level, highlighting the Chinese authorities' concern about the rapid depreciation of the US Dollar.
U.S. dollar rallies, however, are short-lived, with markets increasingly pricing a Federal Reserve rate cut next week and a few more next year. US ADP employment figures released on Wednesday showed an unexpected net employment loss in November, heightening concerns about a deteriorating labour market and adding pressure on the Fed to lower borrowing costs.
In New Zealand, Anna Breman, the former Deputy Governor of the Swedish Central Bank, replaced Adrian Orr as the Reserve Bank of New Zealand’s (RBNZ) Governour. The New Zealand central bank cut interest rates in November and signalled the end of the easing cycle, triggering NZD-supportive monetary policy divergence with the US Federal Reserve.
The New Zealand calendar is thin this week, and the focus now shifts to September’s delayed US Personal Consumption Expenditures (PCE) Price Index, which is likely to show that inflationary prices remain sticky above the Fed’s target rate.
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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