New Zealand Dollar rallies following release of Chinese trade data
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- New Zealand Dollar rises over 0.5% after the release of much. better-than-expected trade data from chief trading partner.
- The data indicates a probable increase in demand for New Zealand goods from mainland China.
- The charts are showing NZD/USD in a messy range-bound market, which is difficult to forecast.
The New Zealand Dollar (NZD) is rallying strongly on Thursday after the release of much better-than-expected trade data from its largest export partner China.
The NZD/USD pair is up over half a percent at time of publication, trading at 0.6160s. The New Zealand Dollar versus the Euro is up just under half a percent, trading at 0.5640s, and NZD/GBP is trading in the 0.4820s, up a quarter of a percent.
New Zealand Dollar enjoys stardust of China data
The New Zealand Dollar is gaining after the release of Chinese Trade Balance data, which showed an unexpected rise in the trade surplus to $125.16 billion in February, according to data from the General Administration of Customs for the People’s Republic of China, released during Thursday’s Asian session.
Economists had expected the Trade Balance to come out at only $103.70 billion, from a lower $75.34 billion in the previous month of January. The higher surplus is a sign of economic health for the Republic of China and suggests greater prosperity, leading to increased demand for New Zealand exports, primarily milk and dairy products. This, in turn, is likely to result in an increase in demand for New Zealand’s currency from Chinese importers.
On the horizon
There are no major releases for the New Zealand Dollar on the horizon. Electronic Card Retail Sales, the Food Price Index and Visitor Arrivals, next week, are minor data points that are unlikely to move the dial.
The NZD/USD is likely to see volatility after the release of Nonfarm Payrolls (NFP) on Friday, however, and possibly from the second day of Federal Reserve (Fed) Chairman Jerome Powell’s testimony to lawmakers on Thursday.
A lower-than-expected NFP result would play into the narrative of the Fed bringing forward interest rate cuts to make sure the economy has a “soft landing”. Earlier interest rate cuts would weigh on the USD, supporting more gains for NZD/USD since lower interest rates are less attractive to investors seeking a place to park their cash.
Technical Analysis: NZD/USD in a messy range
NZD/USD is plum in the middle of a messy sideways consolidation that has lasted for over a year. Whilst it is rising at the moment, the trend is too opaque to guess suggesting little overall directional bias.
New Zealand Dollar vs US Dollar: Daily chart
The top of the range lies far and away at 0.6400 and only a break above it would suggest a bullish trend developing. The range bottom – if one can be deduced amongst all the ups and downs – lies at around 0.5800, and it would require a break below that to ignite bears.
During late February, the volatile move down was supported by the 100 and 200-day Simple Moving Averages (SMA) acting in concert at around 0.6090. They managed to catch the falling price and turn the market around. Since Wednesday price has bounced back strongly but it’s not enough to deduce a short-term uptrend is in play.
If Thursday (today) and Friday (tomorrow) end as green up days, a bullish Three White Soldier Japanese candlestick pattern will have formed, suggesting a greater chance of a bullish continuation. However, we are still far from that, and given the generally sideways nature of the pair, even such a pattern might not be so reliable unless accompanied by a key shift in fundamentals.
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.