NZD/USD is trading in positive territory for the third day in a row around 0.5800 during the Asian session on Tuesday. The US Dollar (USD) fell against the New Zealand Dollar (NZD) due to weaker than expected US economic data. Traders are gearing up for the US December employment report later Friday looking for clues about the Federal Reserve’s interest rate path.
Data released by the Institute for Supply Management (ISM) on Monday showed that the US Manufacturing Purchasing Managers’ Index (PMI) fell to 47.9 in December, compared to 48.2 in November. This reading extended its decline to 10 consecutive months and was below the market consensus of 48.3. The US dollar fell in immediate reaction to the downbeat US Manufacturing PMI report.
Renewed concerns about the Fed’s independence could push the dollar lower and create tailwinds for the pair. Traders await Trump’s decision on the next Fed Chairman as Jerome Powell’s term expires in May. Trump said he would announce his choice this month, and said Powell’s successor would be “someone who believes in cutting interest rates a lot.”
The United States arrested Venezuelan President Nicolas Maduro and his wife Celia Flores in Caracas. US President Donald Trump has stated that Washington is “currently in charge” of Venezuela and intends to “manage” the country until a proper transition is established. Uncertainty and tensions between the US and Venezuela could boost safe haven demand, supporting the US dollar in the near term.
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.
