NZD/USD declines below 0.5800 on weak Chinese data
- NZD/USD attracts some sellers to near 0.5780 in Monday’s Asian session.
- China’s Retail Sales rose 1.3% YoY in November, weaker than expected.
- Traders brace for the US October NFP report on Tuesday.
The NZD/USD pair loses ground to around 0.5780 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) weakens against the US Dollar following the downbeat Chinese economic data. Federal Reserve (Fed) officials are set to speak later in the day, including Fed Governor Stephen Miran and New York Fed President John Williams. The delayed US Nonfarm Payrolls (NFP) report for October will be the highlight on Tuesday.
Data released by the National Bureau of Statistics (NBS) on Monday showed that China’s Retail Sales rose 1.3% YoY in November, compared to 2.9% in October. This figure came in weaker than the market expectation of 2.9% by a wide margin. Meanwhile, Chinese Industrial Production increased 4.8% YoY in the same period, versus 5.0% forecast and 4.9% prior. The worse-than-estimated Chinese economic data exert some selling pressure on China’s proxy Kiwi, as China is a major trading partner for New Zealand.
Early Monday, Reserve Bank of New Zealand (RBNZ) Governor Anna Breman said that the economic outlook has evolved broadly in line with the Monetary Policy Committee’s expectations, with signs continuing to emerge that growth is recovering. While a slight chance of another rate cut exists, the Official Cash Rate (OCR) is likely to remain at its current level of 2.25% for some time if conditions evolve as expected. The cautious stance from the RBNZ Governor could help limit the NZD’s losses in the near term.
The Fed last week announced its third and final quarter-point rate reduction this year, cutting interest rates by 25 basis points (bps) to a target range of 3.50% to 3.75%. Fed Chair Jerome Powell said during the press conference that policymakers need time to see how the Fed's three cuts this year work their way through the US economy.
Traders will closely monitor the US October NFP report on Tuesday. This report could provide more clarity on the labor market's health and likely influence expectations for the Fed's January meeting. Any signs of a weakening US labor market could drag the Greenback lower and create a tailwind for the pair.
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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