NZD/USD gathers strength above 0.5700 as New Zealand's Retail Sales beat expectations

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The NZD/USD pair extends the rally to around 0.5710 during the early Asian session on Thursday. The US Dollar (USD) weakens against the New Zealand Dollar (NZD) as traders expect the US Federal Reserve (Fed) to deliver a further interest rate cut in December.

NZD/USD gains ground to near 0.5710 in Thursday’s early Asian session.
New Zealand’s Retail Sales rose 1.9% QoQ in Q3, stronger than expected.
US weekly Initial Jobless Claims declined to 216,000 last week.

Data released by Statistics New Zealand on Thursday showed that Retail Sales rose by 1.9% QoQ in the third quarter (Q3), compared to an increase of 0.5% in the previous reading (revised from 0.7%). This figure came in stronger than the expectation of 0.6%. Meanwhile, Retail Sales ex Autos climbed 1.9% QoQ in Q3, versus 0.5% prior (revised from 0.7%). The Kiwi attracts some buyers in an immediate reaction to the upbeat New Zealand Retail Sales data.

Furthermore, business confidence in New Zealand has hit its highest level in 11 years, according to the ANZ's Business Outlook (ANZBO) survey for November. ANZ chief economist Sharon Zollner said on Thursday that the improvement in sentiment "is rooted in an improvement in experienced activity, not just hope”.

US President Donald Trump is potentially naming top economic adviser Kevin Hassett as successor to Fed Chairman Jerome Powell, Reuters reported on Wednesday. Traders believe that the leading candidate to be the next Fed chair may pursue a more dovish policy, which could undermine the Greenback and act as a tailwind for the pair.

US Initial Jobless Claims for the week ending November 22 declined by 6,000 to a seasonally adjusted 216,000. This registered the lowest level since April. Economists had forecast 225,000 claims for the latest week. Some stronger signs in the US labor market might help limit the USD’s losses in the near term.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.