NZD/USD holds negative ground near 0.5850 despite upbeat Chinese Services PMI data

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NZD/USD softens to around 0.5860 in Wednesday’s early Asian session.
China’s RatingDog Services PMI rose to 53 in August, stronger than expected.
Rising debt piles in many major economies concern investors, boosting the US Dollar's safe-haven appeal.

The NZD/USD pair trades in negative territory near 0.5860 during the early Asian session on Wednesday. The New Zealand Dollar (NZD) remains weak despite the upbeat China’s Caixin Services Purchasing Managers Index (PMI). Traders brace for the US JOLTS Job Openings and the Fed Beige Book, which are due later on Wednesday.

Data released by Ratings Dog on Wednesday showed that China's Services PMI unexpectedly climbed to 53.0 in August from 52.6 in July. This figure came in stronger than the market expectation of 52.5 in the reported period. However, this encouraging Chinese economic data fails to boost the China-proxy Kiwi as traders turn cautious.

The global bond market sell-off is fueling risk aversion, benefiting the safe-haven currency like the US Dollar (USD), and acting as a headwind for the pair. Investors are concerned about rising debt piles in many major economies. “The risk-off sentiment today is broader market unease stemming from the bond market,” said Marija Veitmane, head of equity research at State Street Markets.

On the other hand, rising bets of the Federal Reserve (Fed) rate cut in the September meeting and dovish remarks from Fed policymakers could undermine the Greenback in the near term. Money markets are currently pricing in nearly a 91% chance that the Fed will cut rates by 25 basis points (bps) this month, up from 85% odds last week, according to the CME FedWatch tool.

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.