- NZD/USD gains ground to around 0.5875 in Monday’s early Asian session.
- New Zealand’s PPI Input and Output were stronger than expected in Q3; Business NZ PSI improved in October.
- Strong US data and muted expectations for US rate cuts might cap the pair’s upside.
The NZD/USD pair trades in positive territory near 0.5875 on Monday during the early Asian session. The pair edges higher on the stronger-than-expected New Zealand economic data and the consolidation of the Greenback.
Data released by Statistics New Zealand on Monday showed that New Zealand’s Producer Price Index (PPI) Input climbed 1.9% QoQ in the third quarter (Q3), compared to 1.4% in the previous reading. Meanwhile, the PPI Output rose 1.5% QoQ in Q3 versus 1.1% prior. Both figures came in better than the estimations. Additionally, the Business NZ Performance of Services Index (PSI) improved to 46.0 in October from 45.7 in September. The upbeat economic data provides some support to the New Zealand Dollar (NZD) against the US Dollar (USD).
However, the upside for the Kiwi might be limited as President-elect Donald Trump has threatened to implement 60% tariffs on exports from China as he seeks to protect US companies and jobs. The likely negative spillovers from Trump’s policies might drag the NZD lower as China is a major trading partner for New Zealand.
On the USD’s front, the solid economic performance and the cautious tones from the US Federal Reserve (Fed) reduced the expectations for a rate reduction at the central bank's upcoming FOMC meeting in December, lifting the USD. Futures markets hint at 60% odds of a Fed rate cut in December, though expectations for rate cuts through 2025 have moderated to 77 basis points (bps).
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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