NZD/USD holds above 0.5900 on weaker US Dollar, renewed US-China tensions might cap its upside
- NZD/USD drifts higher to around 0.5935 in Wednesday’s early Asian session, adding 0.18% on the day.
- New Zealand's Trade Surplus climbs to NZ$1,426 million in April vs. NZ$794 million prior.
- The concerns over the US economy could drag the US Dollar lower broadly.
The NZD/USD pair attracts some buyers to around 0.5935 during the early Asian session on Wednesday, bolstered by a weaker US Dollar (USD). The Federal Reserve’s (Fed) Thomas I. Barkin is scheduled to speak later on Wednesday.
Data released by Statistics New Zealand on Wednesday showed that the country’s trade surplus soared to NZ$1,426 million in April versus NZ$794 million prior, spurred by a robust performance in dairy and fruit exports. This figure came in above the market consensus of NZ$500 million. Despite this monthly win, there's still a looming trade deficit of NZ$4.81 billion YoY in April.
Under the deal reached in Geneva, the US lowered its tariff on Chinese goods from 145% to 30%, while China cut its rate from 125% to 10%. However, tariff unpredictability remains in place for the time being. China’s Commerce Ministry said early Wednesday that US measures on China’s advanced chips are ‘typical of unilateral bullying and protectionism.’ Chinese authorities urged the US to immediately correct its erroneous practices.
Any signs of escalating trade tensions between the US and China could exert some selling pressure on the China-proxy Kiwi, as China is a major trading partner of New Zealand.
Meanwhile, the US Dollar remains on the defensive, as sentiment weakened after Moody’s downgrade of the US credit rating from Aaa to Aa1. This raised questions about the economic health of the world's largest economy. “The Moody’s downgrade was the catalyst earlier pushing yields higher and the dollar lower. Now yields have come off those highs and the dollar is still lower,” said Vassili Serebriakov, currency strategist at UBS in New York.
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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