- NZD/USD gains traction to near 0.5905 in Wednesday’s Asian session.
- China’s economy grew 5.4% YoY in Q1, stronger than expected.
- Vacillating US trade policies and Fed rate cut bets weigh on the US Dollar.
The NZD/USD pair holds positive ground around 0.5905 during the Asian trading hours on Wednesday. The Kiwi strengthens against the US Dollar (USD) after the upbeat Chinese economic data. Traders will shift their attention to the US March Retail Sales and the speech of Federal Reserve (Fed) Chair Jerome Powell on Wednesday.
Data released by the National Bureau of Statistics of China on Wednesday showed that China’s Gross Domestic Product (GDP) rate climbed 5.4% YoY in the first quarter (Q1), compared to an annual rate of 5.4% recorded in the final quarter of last year. This figure came in stronger than the market forecast of 5.1%. On a quarterly basis, the Chinese Gross Domestic Product (GDP) rate rose 1.2% in Q1 versus 1.6% in the previous quarter, missing the anticipated 1.4% print.
Meanwhile, the nation’s Retail Sales jumped by 5.9% YoY in March versus 4.0% prior and 4.2% expected. Industrial Production arrived at 7.7% YoY in March from 5.9% in February, above the market consensus of 5.6%. The New Zealand Dollar (NZD) attracts some buyers in an immediate reaction to stronger-than-expected Chinese economic data.
Trump raised additional tariffs to 84% on April 9 and has since increased that to 125%, bringing the total tariffs on Chinese goods exported to the US to 145%. On Monday, Trump said he was considering a modification to the 25% tariffs imposed on foreign auto and auto parts imports from Mexico, Canada and other nations.
The uncertainty surrounding Trump’s tariff policy and rising bets that a tariff-driven US economic slowdown might force the Federal Reserve (Fed) to cut interest rates more aggressively in 2025 could drag the Greenback lower and create a tailwind for the NZD/USD pair in the near term. The markets are now pricing in nearly 85 basis points (bps) worth of monetary policy easing by the end of the year, with most expecting the Fed to hold rates next month, according to the CME FedWatch tool.
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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