The NZD/USD pair is losing strength to around 0.5780 during Asian trading hours on Monday. The New Zealand Dollar (NZD) weakens against the US Dollar after pessimistic Chinese economic data. Fed officials are scheduled to speak later in the day, including Fed Governor Stephen Meiran and New York Fed President John Williams. The delayed US non-farm payrolls (NFP) report for October will be the highlight on Tuesday.
Data released by the National Bureau of Statistics on Monday showed that retail sales in China rose 1.3% year-on-year in November, compared to 2.9% in October. This figure was significantly weaker than market expectations of 2.9%. Meanwhile, Chinese industrial production rose by 4.8% year-on-year in the same period, versus the expected 5.0% and the previous 4.9%. Worse-than-expected Chinese economic data is putting some selling pressure on the Kiwi dealer, as China is a major trading partner for New Zealand.
Early on Monday, Anna Breman, Governor of the Reserve Bank of New Zealand (RBNZ), said the economic outlook had developed broadly in line with the Monetary Policy Committee’s expectations, with signs continuing that growth was recovering. While there is little chance of another rate cut, the official cash rate (OCR) is likely to remain at its current level of 2.25% for some time if conditions develop as expected. A dovish stance from the Reserve Bank of New Zealand Governor could help limit NZD losses in the near term.
The Fed last week announced its third and final rate cut this year, lowering interest rates by 25 basis points to a target range of 3.50% to 3.75%. Federal Reserve Chairman Jerome Powell said during the press conference that policymakers need time to figure out how the three cuts made by the Fed this year will affect the US economy.
Traders will be closely monitoring the October non-farm payrolls report in the US on Tuesday. This report could provide more clarity on the health of the labor market and potentially influence expectations for the Fed’s January meeting. Any signs of weakness in the US labor market may lead to a decline in the dollar and create tailwinds for the pair.
Frequently asked questions about the New Zealand dollar
The New Zealand Dollar (NZD), also known as the Kiwi, is a popular currency among investors. Its value is widely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some unique characteristics that could make the New Zealand dollar move as well. The performance of the Chinese economy tends to move the New Zealand dollar because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely mean New Zealand’s exports to the country will decline, affecting the economy and therefore its currency. Another factor that affects the New Zealand dollar is dairy prices as the dairy industry is New Zealand’s main export. Higher dairy prices boost export income, which contributes positively to the economy and therefore the New Zealand dollar.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain inflation between 1% and 3% over the medium term, with a focus on keeping it near the 2% midpoint. To this end, the Bank sets an appropriate level of interest rates. When inflation is very high, the Reserve Bank of New Zealand will increase interest rates to cool the economy, but this move will also cause bond yields to rise, making it more attractive for investors to invest in the country and thus strengthening the New Zealand dollar. Conversely, low interest rates tend to weaken the New Zealand dollar. The so-called spread, or how New Zealand’s interest rates compare or are expected to compare to those set by the US Federal Reserve, can also play a major role in moving the NZD/USD pair.
New Zealand’s macroeconomic data releases are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment, and high confidence, is good for the New Zealand dollar. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength is accompanied by higher inflation. Conversely, if economic data is weak, the value of the New Zealand dollar is likely to decline.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk, or when investors view broader market risks as low and are optimistic about growth. This tends to lead to a more positive outlook for commodities and so-called “commodity currencies” such as the New Zealand. Conversely, the New Zealand dollar tends to weaken in times of market turmoil or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.
