NZD/USD strengthens above 0.5800 amid US government shutdown fears

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The NZD/USD pair trades in positive territory for the second consecutive day around 0.5820 during the early Asian session on Thursday.

NZD/USD gains ground near 0.5820 in Thursday’s early Asian session.
US private sector payrolls dropped by 32,000 in September, weaker than expected.
The prospect of further rate cuts by the RBNZ this year might cap the pair’s upside.

The NZD/USD pair trades in positive territory for the second consecutive day around 0.5820 during the early Asian session on Thursday. The US Dollar (USD) softens against the New Zealand Dollar (NZD) as the US government shut down after US President Donald Trump and Congress failed to reach a deal. The US weekly Initial Jobless Claims will not be published in light of the ongoing federal shutdown.

The federal government shut down on Wednesday after a deadlocked Congress failed to reach a funding deal. The September US Nonfarm Payrolls (NFP) report will not be released on Friday, as the Labor Department has paused virtually all activity. "We are concerned with the government shutdown, which also does not bode well for the buck," said Juan Perez, director of trading at Monex USA in Washington.

The private-sector jobs in the United States contracted last month, boosting expectations that the Federal Reserve (Fed) will cut interest rates two more times this year. This, in turn, could also weigh on the Greenback and create a tailwind for the pair.

US private sector payrolls declined 32,000 in September and annual pay was up 4.5% on a yearly basis, the Automatic Data Processing (ADP) showed Wednesday. This figure followed the 3,000 decrease (revised from a 54,000 increase) reported in August and came in below the market expectation of 50,000.

On the other hand, the dovish stance by the Reserve Bank of New Zealand (RBNZ) might undermine the Kiwi against the USD. The RBNZ's forecasts suggested additional rate reductions, potentially with two more 25 basis points (bps) easing by March next year. Nonetheless, the exact timing and extent of these future cuts will depend on the pace of the economic recovery.

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.