NZD/USD recovers above 0.5900 as traders weigh US downgrade, mixed New Zealand data
- NZD/USD edges higher on Monday, but stalls near the previous day’s high.
- New Zealand’s services sector contracts further in April as the PSI index drops to 48.5.
- Q1 producer prices rise sharply in New Zealand, with inputs rising by 2.9% and outputs by 2.1%.
The New Zealand Dollar (NZD) is recovering firmly above the 0.5900 mark agains the US Dollar (USD) on Monday, last seen trading around 0.5910, up nearly 0.50% on the day. The NZD/USD pair draws support from broad US Dollar weakness following Moody’s downgrade of the US credit rating. However, the pair is struggling to break above the previous day’s high, as mixed domestic data weighs on sentiment toward the New Zealand Dollar.
The latest Business NZ Performance of Services Index (PSI) fell to 48.5 in April from 49.1 in March, marking the lowest level since November and reinforcing signs of continued contraction in New Zealand’s service sector.
BNZ Senior Economist Doug Steel noted, “For all the commentary around the economic recovery, the PSI is a good reminder that current conditions are extremely challenging. New Zealand’s PSI remains weaker than all our key trading partners. At 48.5, it’s consistent with a service sector still moving backwards.”
On the inflation front, the Producer Price Index (PPI) surged in the first quarter. Input prices jumped 2.9% QoQ, rebounding from a 0.9% drop in Q4, while output prices rose 2.1%, reversing a 0.1% decline. Both figures marked the strongest increases since Q2 2022, reflecting rising cost pressures in the economy.
Looking ahead, traders will focus on a busy domestic economic data calendar that could influence sentiment toward the New Zealand Dollar. On Wednesday, the trade balance figures will offer insight into export and import dynamics amid a weakening global demand environment. This will be followed by the government’s annual budget release on Thursday, expected to slash 2025 baseline spending to NZ$1.3 billion from NZ$2.4 billion, according to Radio New Zealand. The week concludes with the Q1 Retail Sales report on Friday, a key indicator of consumer spending that could shape market expectations around future RBNZ policy decisions.
Meanwhile, the US Dollar Index (DXY) remains under pressure near the 100.00 mark after Moody’s downgraded the US credit rating to “Aa1” on Friday. Traders will closely monitor speeches from Federal Reserve (Fed) officials today, such as Fed Bank of Dallas President Lorie Logan and President of the Fed Bank of Minneapolis Neel Kashkari, for insights into the US monetary policy trajectory.
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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