The New Zealand dollar rebounded from session lows of 0.5730, amid upbeat macroeconomic data from China, New Zealand’s main trading partner, and a weaker US dollar. However, the maximum upward move has been set at 0.5780, leaving the pair confined within the trading range of the last few weeks.
Data from China, released on Monday, revealed that the country’s GDP slowed to 4.5% year-on-year growth from 4.8% in the previous quarter, but remained above the 4.4% growth forecast by market analysts. These figures show that the country’s economic growth achieved the government’s target of 5%, amid a sharp increase in exports, which compensated for the weak performance of domestic demand.
December figures showed that industrial production rose by 0.5% compared to November, hitting a three-month high of 5.2% on an annual basis. On the other hand, retail sales slowed to 0.9% from 1.3% in the previous month, and housing prices accelerated their decline, contracting at a pace of 2.7% from -2.4% in November, reflecting slowing consumption and a weak real estate market.
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However, the US dollar remains on the defensive, hurt by US President Donald Trump’s threats to impose new tariffs on European countries in response to their opposition to his plans to annex Greenland. Trump announced additional 10% tariffs on eight EU member states, putting concerns about the consequences of erratic trade policy back on the table.
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.
