NZD/USD strengthens above 0.6050 as US Dollar weakness continues
- NZD/USD gains ground to near 0.6080 in Monday’s early European session.
- China’s NBS Manufacturing PMI rose to 49.7 in June; Non-Manufacturing PMI climbed to 50.5.
- Traders see the US Fed as 92.4% likely to reduce rates by the September meeting.
The NZD/USD pair trades in positive territory for six consecutive days around 0.6080 during the early European session on Monday. Rising bets of Federal Reserve (Fed) interest rate cuts weigh on the US Dollar (USD) against the New Zealand Dollar (NZD). The Fed officials are set to speak later on Monday, including Raphael Bostic and Austan Goolsbee.
Data released by China’s National Bureau of Statistics (NBS) on Monday showed that the country’s Manufacturing Purchasing Managers' Index (PMI) rose to 49.7 in June from 49.5 in May. This figure came in line with the market consensus. Meanwhile, the NBS Non-Manufacturing PMI climbed to 50.5 in June versus 50.3 prior, stronger than the expectation of 50.3. The encouraging Chinese economic data provide some support to the China-proxy Kiwi as China is a major trading partner to New Zealand.
Furthermore, investors interpreted Fed Chair Jerome Powell's testimony to US Congress last week as dovish. This, in turn, continues to undermine the Greenback and acts as a tailwind for NZD/USD. The markets have priced in nearly 92.4% chance of one quarter-point Fed rate reduction, up from 70% a week earlier, according to 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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