NZD/USD weakens to near 0.5750 as traders await US jobs report

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The NZD/USD pair extends the decline to near 0.5765 during the Asian trading hours on Thursday. The New Zealand Dollar (NZD) weakens against the US Dollar (USD) amid the cautious mood ahead of the release of key US economic data later this week.

NZD/USD softens to around 0.5765 in Thursday’s Asian session.
Markets turn cautious ahead of the US December employment report, supporting the US Dollar.
The US ISM Services PMI rose to 54.4 in December, stronger than expected.

Traders brace for the US employment report for December on Friday, as it might offer some hints about the interest rate path. The US economy is estimated to see 60,000 job additions in December, while the Unemployment Rate is forecast to tick lower to 4.5% during the same period.

Any signs of weakness in the US labor market could support the case for the US Federal Reserve (Fed) easing and weigh on the Greenback. On the other hand, if the reports show stronger-than-expected outcomes, this could boost the USD and create a headwind for the pair.

US services activity improved in December, according to the Institute for Supply Management (ISM) on Wednesday. The US Services Purchasing Managers Index (PMI) rose to 54.4 in December, versus 52.6 prior. This figure came in above the market consensus of 52.3.

The US captured Venezuelan President Nicolás Maduro and his wife in Caracas on Saturday. US President Donald Trump said that Washington is currently "in charge" of Venezuela and intends to "run" the country until a proper transition is established. Uncertainty and tensions between the US and Venezuela could undermine the riskier assets, such as the Kiwi against the USD, 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.

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