- NZD/USD tumbles to 0.5545 in Monday’s early Asian session.
- China’s Caixin Manufacturing PMI eased to 50.1 in January vs. 50.5 expected.
- Fears of an escalating trade war boost the USD and create a headwind for the pair.
The NZD/USD pair faces some selling pressure to near 0.5545 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) weakens as trade tensions mount after the US tariff announcement by US President Donald Trump and China’s Caixin Manufacturing PMI came in weaker than expected in January.
Trump slapped Canada, Mexico and China with tariffs, which are due to take effect on Tuesday. The countries immediately vowed retaliatory measures, and China said it would challenge Trump's levies at the World Trade Organization (WTO). The risk-off sentiment and concern about the trade war boost the safe-haven flows and act as a headwind for the pair.
Data released by Caixin Insight Group and S&P Global on Monday showed that China’s Manufacturing Purchasing Managers Index (PMI) eased to 50.1 in January. This reading came in weaker than expected and a previous reading of 50.5. The Kiwi remains weak in an immediate reaction to the downbeat Chinese economic data as China is a major trading partner to New Zealand.
The prospect of more Reserve Bank of New Zealand (RBNZ) rate cuts could further weigh on the New Zealand Dollar (NZD). "In line with RBNZ guidance, markets continue to imply another 50bps rate cut to 3.75% at the February 19 meeting and the policy rate to bottom at 3.00% over the next 12 months," said BBH FX analysts.
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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