- NZD/USD softens to around 0.5915 in Friday’s Asian session.
- China’s Retail Sales rose 3.7% YoY in July, softer than expected.
- Fed rate cut bets in the September meeting might cap the downside for the pair.
The NZD/USD pair attracts some sellers near 0.5915 during the Asian trading hours on Friday. The New Zealand Dollar (NZD) pares gains against the US Dollar (USD) after the release of Chinese economic data. Traders will keep an eye on the US July Retail Sales data and the preliminary reading of the University of Michigan Consumer Sentiment gauge, which are due later on Friday.
Data released by the National Bureau of Statistics (NBS) on Friday showed that China’s Retail Sales increased 3.7% YoY in July, compared to 4.6% expected and 4.8% in June. Meanwhile, Industrial Production rose 5.7% YoY in July versus 6.8% prior. This figure came in worse than the estimation of 2.7%.
The China-proxy Kiwi edges slightly lower in an immediate reaction to the softer Chinese data. It’s worth noting that China is a major trading partner of New Zealand, and weak Chinese data tends to have a negative impact on the NZD value.
On the USD’s front, Thursday’s stronger US Producer Price Index (PPI) and Initial Jobless Claims report did not upset the case for a September rate cut from the US Federal Reserve (Fed). This, in turn, might drag the USD lower and create a tailwind for the pair. Traders still see a Fed rate reduction on September 17 as a near certainty, according to LSEG data.
New Zealand Dollar FAQs
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.
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.
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.
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.