The NZD/USD pair pared recent gains from the previous session, trading around 0.5740 during European hours on Thursday. The pair fell as the US dollar (USD) rose after stronger-than-expected US economic data reinforced expectations that the US Federal Reserve will keep interest rates unchanged in the coming months. Traders will also be watching the US weekly initial jobless claims data later in the day.
The U.S. Census Bureau reported Wednesday that retail sales rose more than expected to $735.9 billion in November, up 0.6%, after a 0.1% contraction in October and beating market expectations for a 0.4% increase. Meanwhile, the Producer Price Index (PPI) came in hot in November, with key and core metrics hitting 3% year-on-year.
Minneapolis Federal Reserve Bank President Neel Kashkari said on Wednesday that the overall economy appears to be quite resilient, and that it has seen less tariffs pass through than expected. Kashkari added that inflation is still very high but is moving in the right direction. Furthermore, Morgan Stanley analysts delayed their rate cut expectations to June and September from January and April after Friday’s jobs report.
The New Zealand Dollar (NZD) is weakening against the US Dollar (USD) amid renewed concerns about the trade war between the US and New Zealand’s main trading partner, China. On Wednesday, US President Donald Trump signed two executive orders imposing a 25% tariff on some semiconductors and allowing potential tariffs on critical metals.
The White House said that the United States depends 100% of its net imports on 12 important minerals and more than 50% depends on imports of 29 other minerals, a dependence that has strengthened China’s influence in recent discussions between the United States and China due to its dominance in important minerals and their processing.
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 risk 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.
