NZD/USD remains below 0.6050 after pulling back from eight-month highs
- NZD/USD retreated from an eight-month high of 0.6081, recorded on Thursday.
- US Weekly Initial Jobless Claims climbed to 247,000, above the expected 235,000.
- Market sentiment improved after a productive phone call between Donald Trump and Xi Jinping.
NZD/USD is trading around 0.6030 during the Asian hours on Friday after retreating from the eight-month high of 0.6081, reached on Thursday. The currency cross holds losses as the US Dollar (USD) gains ground, with traders’ cautious awaiting of the upcoming US Nonfarm Payrolls, which is expected to have added 130,000 jobs in May, below the 177,000 increase in April. Moreover, the Unemployment Rate is also expected to hold steady at 4.2%.
UBS' economist Paul Donovan said that the uncertain economic outlook in the United States (US) makes it difficult for the Federal Reserve (Fed) Chairman Jerome Powell to decide on monetary policy. The risk of policy error increases as Powell insists on data dependency. Policy operates with a lag, and real-time data, which is unreliable and normally a bad option.
A productive phone call between US President Donald Trump and Chinese President Xi Jinping has improved the market sentiment. Trump expressed that the call was productive and prepared to continue tariff negotiations. Traders would likely observe Monday’s slew of data from China, including consumer, producer prices, and trade data. Any changes in the Chinese economy could impact the New Zealand Dollar (NZD), as China and New Zealand are close trade partners.
Markets now expect the Reserve Bank of New Zealand (RBNZ) to hold rates steady at its July meeting after delivering a 25 basis point rate cut last week. The central bank is expected to deliver its last rate cut of the cycle in August.
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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