NZD/USD remains subdued near 0.5950 following Business NZ PSI, Chinese data eyed

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NZD/USD extends its losses for the second successive session, trading around 0.5950 during the Asian hours on Monday.

NZD/USD holds losses as the Business NZ PSI fell to 47.5 in August from 48.9 in July.
China’s Retail Sales are expected to climb by 3.8% YoY, while Industrial Production may increase by 5.8% YoY in August.
Morgan Stanley and Deutsche Bank now forecast that the US Fed will implement three rate cuts this year.

NZD/USD extends its losses for the second successive session, trading around 0.5950 during the Asian hours on Monday. The currency cross holds losses as the New Zealand Dollar (NZD) struggles following the Business NZ Performance of Services Index (PSI), which fell to 47.5 in August from 48.9 in July, remaining well below the long-term average of 52.9 and marking its 18th consecutive month of contraction.

Traders adopt caution ahead of Retail Sales and Industrial Production from New Zealand's top trading partner, China, due later in the day. Retail Sales is expected to show an increase of 3.8% year-over-year (YoY) in August, compared to 3.7% in the previous reading. Industrial Production is projected to show a rise of 5.8% YoY in the same period versus 5.7% prior.

US Treasury Secretary Scott Bessent, Trade Representative Jamieson Greer, and their Chinese counterpart, Vice Premier He Lifeng, discussed trade and the economy during high-level talks in Madrid. Traders will be watching closely as the US-China talks move into their second day.

However, the downside of the NZD/USD pair could be restrained as the US Dollar (USD) may face challenges as a weakening US labor market boosts the likelihood of the US Federal Reserve (Fed) delivering its first rate cut of the year on Thursday. The Fed is expected to lower rates by 25 basis points at its September meeting, though there remains a slight chance of a 50-basis-point cut. Markets have also factored in continued easing through 2026 to help stave off a potential recession.

Morgan Stanley and Deutsche Bank now expect the US central bank to deliver three rate cuts this year, after recent data pointed to easing inflation pressures. In separate notes on Friday, the brokerages projected 25-basis-point reductions at each of the Fed’s remaining meetings in September, October, and December, according to Reuters.

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.