NZD/USD hovers around 0.5750 as traders adopt caution ahead of US CPI data

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NZD/USD moves little after registering gains in the previous session, trading around 0.5750 during the early European hours on Friday.

NZD/USD moves little as risk aversion increases ahead of US inflation figures due on Friday.
US Dollar may struggle as the US government impasse enters its 24th day, marking the second-longest funding lapse in history.
The New Zealand Dollar holds ground due to hopes for a potential US-China trade agreement.

NZD/USD moves little after registering gains in the previous session, trading around 0.5750 during the early European hours on Friday. The pair may depreciate as the US Dollar (USD) holds gains on increased risk aversion ahead of the United States (US) Consumer Price Index (CPI) data for September due later in the North American session, amidst the ongoing government shutdown and resulting data blackout.

However, the US Dollar may struggle as the prolonged US government shutdown delays the key US economic data releases, including Nonfarm Payrolls (NFP), adding uncertainty for financial markets and the Federal Reserve (Fed). The US government shutdown has entered its 24th day, marking the second-longest federal funding lapse in history, with no end in sight. The GOP-backed stopgap bill failed to pass in the Senate for a 12th time on Wednesday evening.

The NZD/USD pair remains steady as the New Zealand Dollar (NZD) receives support from optimism surrounding the potential US-China trade deal. It is important to note that any shift in China’s economic conditions could affect the Kiwi Dollar, given the close trade ties between China and New Zealand.

US President Donald Trump said on Wednesday that he expects to strike several agreements with Chinese President Xi Jinping during their meeting in South Korea next week. The White House confirmed that President Donald Trump will meet with Chinese leader Xi Jinping on October 30 in South Korea on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Summit, according to Reuters.

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.