NZD/USD rally stalls below 0.5780 amid a risk-averse market mood
- NZD/USD stalls below 0.5780 after bouncing up from 0.5730.
- The Kiwi Dollar rallied on upbeat economic data from China and a weak US Dollar.
- The USD drops across the board following Trump's new Tariff threat.
The New Zealand Dollar bounced up from session lows around 0.5730, amid upbeat macroeconomic data from China, New Zealand’s major trading partner, and a weaker US Dollar. Bulls, however, have been capped at the 0.5780 area, which leaves the pair trapped within the last few weeks’ trading range.
Data from China, released on Monday, revealed that the country’s Gross Domestic Product (GDP) slowed to 4.5% Year-on-year growth from 4.8% in the previous quarter, yet remained above the 4.4% growth forecast by market analysts. These figures show that the country's economic growth met the government’s 5% target, amid a sharp increase in exports, which offset the weak performance of the domestic demand.
Figures from December showed that industrial production rose 0.5% from November, growing at a three-month high of 5.2% year-on-year. Retail sales, on the other hand, slowed down to 0.9% from 1.3% in the previous month, and housing prices accelerated their decline, contracting at a 2.7% pace from -2.4% in November, reflecting sluggish consumption and a weak property market.
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The US Dollar, however, remains on its back foot, hammered by US President Donald Trump’s threats of new tariffs on European countries in retaliation for their opposition to his plans of annexing Greenland. Trump has flagged an additional 10% tariffs on eight EU member states, bringing concerns about the consequences of an erratic trade policy back to the table.
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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