NZD/USD weakens below 0.5800 on disappointing Chinese data, US NFP data in focus

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The NZD/USD pair trades in negative territory for the fourth consecutive day around 0.5775 during the early Asian session on Tuesday. The downbeat Chinese economic data exert some selling pressure on the New Zealand Dollar (NZD) against the US Dollar (USD).

NZD/USD edges lower to near 0.5775 in Tuesday’s early Asian session.
The weaker-than-expected Chinese economic data weigh on the China-proxy New Zealand Dollar.
The key US Nonfarm Payrolls reports for October and November will be in the spotlight on Tuesday.

China’s Retail Sales expanded at their slowest pace since the COVID-19 pandemic, while the Industrial Production fell short of forecasts in November. This, in turn, undermines the China-proxy Kiwi, as China is a major trading partner for New Zealand.

China’s Retail Sales increased 1.3% YoY in November, compared to 2.9% in the previous reading, the National Bureau of Statistics (NBS) showed on Monday. This figure came in worse than the market expectation of 2.9% by a wide margin. Meanwhile, Chinese Industrial Production rose 4.8% YoY in the same period, versus 5.0% forecast and 4.9% prior.

The Bureau of Labor Statistics will publish the key US Nonfarm Payrolls (NFP) data for October and November after delays to data collection during the US government shutdown. The report could offer some hints about US employment conditions and the interest rate path. Any signs of slowdown in the US labor market could reinforce bets on rate cuts from the US Federal Reserve (Fed) and drag the Greenback lower.

Fed funds futures are pricing an implied 75.6% chance of a hold in rates at the Fed's January meeting, unchanged from a day earlier, according to the CME Group's FedWatch tool.

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.