New Zealand weakens to near 0.5800 as China's Retail Sales fall short of estimates

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The NZD/USD pair loses momentum to around 0.5810 during the Asian trading hours on Tuesday. The New Zealand Dollar (NZD) weakens against the US Dollar (USD) following the Chinese economic data. All eyes will be on the US Federal Reserve (Fed) interest rate decision later on Wednesday.

NZD/USD declines to near 0.5810 in Tuesday’s Asian session.
China’s Retail Sales fell 0.6% YoY in May, weaker than expected.
Fed is set to keep its benchmark interest rate unchanged at its June meeting on Wednesday.

Data released by the National Bureau of Statistics (NBS) on Tuesday showed that China’s Retail Sales missed expectations in May, falling 0.6% YoY. This figure followed a rise of 0.2% in April and came in weaker than the market expectation of 0%.

Meanwhile, Chinese Industrial Production climbed 4.5% YoY in May, compared to 4.1% in April, above the market consensus of 4.3%. The Fixed Asset Investment came in at -4.1% year-to-date (YTD) YoY in May, weaker than the expected decrease of 2.0%. The April reading was a decline of 1.6%.

The China-proxy Kiwi attracts some sellers following the mixed Chinese data. These reports impact the NZD, as China is New Zealand's largest trading partner.

The attention will shift to the Fed policy meeting on Wednesday. The Fed is likely to keep its key interest rate unchanged at its June policy meeting as it remains in "wait-and-see" mode. Traders will closely watch how new Fed chair Kevin Warsh will lead the US central bank into its next era.

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.