NZD/USD recovery stalls below 0.5925 as the US Dollar picks up from lows

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The New Zealand Dollar treads water above 0.5900 on Monday’s early European session as the market sobers up to the weak US employment figures seen on Friday, and the US Dollar and US Treasury yields pick up from Friday’s lows.

The New Zealand Dollar treads water below 0.5925 in cautious markets.
The US Dollar picks up from lows as investors digest US employment figures.
Traders keep an eye on the US-China trade talks, whose outcome will be determinant to the Kiwi.

The Kiwi jumped about 1.20% on Friday, with the US Dollar tumbling across the board after July’s Nonfarm Payrolls report revealed that the economy created much fewer jobs than expected last month, and the figures released in May and June were revised lower by almost 260.000.

The Unemployment Rate increased to 4.2% in July from 4.1% in June, and investors ramped up their bets on an interest rate cut in September, as concerns about a recession returned to the market.

Bets for a Fed cut in September were boosted to above 90% following the data release and are now at 80%, more than twice the 37% chance priced before the NFP release. US Treasury yields tumbled, bringing the US Dollar down with them.

In New Zealand, the calendar has been thin today, and the focus remains on the trade negotiations between the USA and China, New Zealand’s leading trading partner. US Treasury Secretary Beseent said that an extension of the trade truce between the world’s two major economies is “likely,” yet investors are cautious as the clock ticks towards the August 12 deadline.

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.