NZD/USD gains momentum as China's trade surplus hits 5-month high
- NZD/USD gathers strength to near 0.5785 in Monday’s Asian session.
- China’s Trade Surplus widened to 111.68B in November, largest in five months.
- Traders priced in nearly a 90% chance of a Fed cut on Wednesday.
The NZD/USD pair attracts some buyers to around 0.5785 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) remains weak against the US Dollar (USD) after China’s Trade Balance data. All eyes will be on the US Federal Reserve (Fed) interest rate decision on Wednesday.
Data released by the National Bureau of Statistics of China on Monday showed that China’s Trade Surplus came in at 111.68B, compared to 90.07B in October, widening more than the 100.2B expected. The trade surplus registered the largest since June as Exports surged more than Imports.
Meanwhile, Exports climbed by 5.7% in November versus 1.1% prior. Imports rose by 1.9%, compared to 1.0% previously. A substantial China's Trade Surplus can be viewed as a sign of national economic strength and lifts the China-proxy Kiwi, as China is a major trading partner for New Zealand.
The Fed will hold its final meeting of the year, and markets expect the US central bank to cut interest rates on Wednesday for a third consecutive meeting. This, in turn, could undermine the Greenback and create a tailwind for the pair. Traders are currently priced in nearly a 90% probability for a 25 basis points (bps) reduction to the 3.50% to 3.75% target range at the upcoming meeting on Wednesday, according to the CME FedWatch tool.
Fed Chair Jerome Powell will hold a press conference after the meeting. His remarks could provide some insights into the US interest rate path. If Powell delivers a "hawkish cut," this could provide some support to the USD in the near term.
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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