New Zealand Dollar holds losses below 0.5850 on weak Chinese data
- NZD/USD softens to near 0.5830 in Monday’s Asian session.
- China’s Retail Sales rose 0.2% YoY in April; Industrial Production climbed 4.1% YoY in the same period.
- A surge in US inflation has triggered a shift in Fed expectations toward a rate hike.
The NZD/USD pair trades in negative territory around 0.5830 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) faces some selling pressure following the downbeat Chinese economic data.
Data released by the National Bureau of Statistics (NBS) on Monday showed that China’s Retail Sales rose 0.2% YoY in April, compared to 1.7% in March. This figure came in weaker than the market expectations of 2.0%.
Additionally, Industrial Production climbed 4.1% YoY in the same period, versus 5.7% prior, below the market consensus of 5.9%. The China-proxy Kiwi weakens after the release of the weaker Chinese economic data.
On the USD’s front, traders raise their bets that the US Federal Reserve (Fed) will hike interest rates this year. Several Fed officials this week stated that keeping inflation pressures in check was a top priority, while others did not rule out the possibility that rate hikes may be needed if price pressures kept rising.
Markets are now pricing in nearly a 48.4% odds the Fed could hike rates by at least 25 basis points (bps) at its December meeting, compared with 14.3% a week ago, according to the CME FedWatch tool.
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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