- NZD/USD tumbles to near 0.5900 due to multiple headwinds.
- China’s battered economy and improved RBNZ rate-cut bets have dampened the New Zealand Dollar’s appeal.
- The next move in the US Dollar will be guided by the US Q2 GDP data.
The NZD/USD pair extends its downside to near the round-level support of 0.5900 in Thursday’s European session. The Kiwi asset continues its losing spell for the sixth trading session due to multiple headwinds. Deepening China’s economic woes and increasing Reserve Bank of New Zealand (RBNZ) rate-cut bets have weakened the New Zealand Dollar (NZD).
Weak demand from domestic and the overseas market in the Chinese economy has raised concerns over global growth outlook. The Kiwi Dollar has been hit badly as the New Zealand economy is one of leading trading partners of China.
Adding to China’s economic vulnerability, growing speculation that the RBNZ could pivot to policy normalization from the August policy meeting has weakened the New Zealand Dollar. The expectations for the RBNZ to cut its key Official Cash Rate (OCR) from its current levels in August rose due to cooling inflationary pressures. In the second quarter, inflationary pressures grew at a slower pace of 0.4% from the estimates and the former release of 0.6%. Annually, the price index has decelerated sharply to 3.5%.
Meanwhile, the market sentiment remains risk-off with a focus on the United States (US) Q2 flash Gross Domestic Product (GDP) data, which will be published at 12:30 GMT. S&P 500 futures give up gains posted in Asian trading hours.
The US economy is estimated to have grown at a faster pace of 2.0% from the former release of 1.4% on an annualized basis. The GDP data will significantly influence the US Dollar’s (USD) outlook.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: Some contention seems to have emerged near 0.6500
Another day, another pullback in AUD/USD. This time the pair dropped to multi-week lows and approached the key 0.6500 support, always on the back of weak commodity prices and concerns surrounding the Chinese economy.
EUR/USD: Downside halted near the 200-day SMA
EUR/USD regained some balance and left behind two consecutive daily declines, advancing to the 1.0870 region following the indecisive price action in the US Dollar ahead of key PCE data due on Friday.
Gold challenges critical support
Gold remains under selling pressure on Thursday, trading near a fresh multi-week low of $2,357.92. The bright metal eased throughout the first half of the day amid a dismal market mood. Equities led the way, falling on the back of weak earning reports and a sharp slide in the tech sector.
SEC vs. Ripple lawsuit closed-door meeting could result in resolution, XRP hovers around $0.62
Ripple hovers above key support at $0.62 as traders await a resolution in the US Securities & Exchange Commission lawsuit. The meeting is scheduled to occur behind closed doors on July 25. According to pro-crypto attorney Fred Rispoli, the lawsuit against Ripple could end by July 2024.
Buying on a market decline
In today’s TradeGATEHub Live Trading session, Coach Dale inquires about the specific issues Michael Venezia was buying during the recent market decline. Dale also provides a detailed analysis of precious metals, sharing his insights on potential downside targets.