NZD/USD holds steady near one-month top, below mid-0.5700s after weaker Chinese data

POPULAR ARTICLES

The NZD/USD pair is seen oscillating in a narrow range at the start of a new week and consolidating its recent strong gains to a nearly one-month peak, touched on Friday. Spot prices hold steady below mid-0.5700s and react little to the disappointing Chinese data.

NZD/USD preserves last week’s strong gains as a weaker USD offsets disappointing Chinese data.
China's RatingDog Manufacturing PMI fell from 50.6 to 49.9 in November vs the forecast for a 50.5.
The divergent RBNZ-Fed policy expectations turn out to be another factor supporting spot prices.

In fact, China's RatingDog Manufacturing Purchasing Managers' Index (PMI) unexpectedly returned to contraction, falling to 49.9 in November from 50.6 in October. This comes on top of the official PMIs released over the weekend, which showed that the business activity in China's manufacturing sector contracted for the eighth month, while the gauge for the services sector shrank for the first time in nearly three years and fell to its lowest level since December 2022.

The immediate market reaction, however, turns out to be muted amid easing trade tensions and the recent government measures announced to boost consumption in the world's second-largest economy. This, along with the Reserve Bank of New Zealand's (RBNZ) hawkish outlook on the future policy path, continues to act as a tailwind for the New Zealand Dollar (NZD). Apart from this, the prevalent US Dollar (USD) selling bias offers some support to the NZD/USD pair.

The RBNZ delivered a fully priced 25 basis points (bps) rate cut last week and signaled an end to its easing cycle. In contrast, traders are now pricing in an over 85% chance that the US Federal Reserve (Fed) will lower borrowing costs again this month. This, along with the underlying bullish tone, contributes to the safe-haven Greenback's relative underperformance against the perceived riskier Kiwi and backs the case for a further appreciation for the NZD/USD pair.

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.