NZD/USD edges higher to near 0.5800 as US manufacturing data disappoints
- NZD/USD edges higher to near 0.5800 in Tuesday’s Asian session.
- US manufacturing activity contracted more than expected in December.
- Geopolitical flashpoints could boost safe-haven currencies such as the US Dollar and cap the pair’s upside.
The NZD/USD pair trades in positive territory for the third consecutive day around 0.5800 during the Asian session on Tuesday. The US Dollar (USD) softens against the New Zealand Dollar (NZD) on weaker-than-expected US economic data. Traders brace for the US employment report for December later on Friday for clues on the Federal Reserve (Fed) interest rate path.
Data released by the Institute for Supply Management (ISM) on Monday showed that the US Manufacturing Purchasing Managers Index (PMI) declined to 47.9 in December, versus 48.2 in November. This reading extended its slump to 10 straight months and came in below the market consensus of 48.3. The Greenback edged lower in an immediate reaction to the downbeat US Manufacturing PMI report.
Renewed concerns over the Fed independence could drag the USD lower and create a tailwind for the pair. Traders await Trump's decision for the next Fed Chair as Jerome Powell's term ends in May. Trump said he will announce his pick this month and has said Powell's successor will be "someone who believes in lower interest rates, by a lot."
The US captured Venezuelan President Nicolás Maduro and his wife, Cilia Flores, in Caracas. US President Donald Trump has stated that Washington is currently "in charge" of Venezuela and intends to "run" the country until a proper transition is established. Uncertainty and tensions between the US and Venezuela could boost the safe-haven demand, supporting the US Dollar 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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