NZD/USD softens to near 0.6050 ahead of Chinese GDP, Retail Sales data
- NZD/USD weakens to around 0.6055 in Friday’s early Asian session.
- The stronger US economic data on Thursday supports the Greenback.
- Investors will monitor the Chinese GDP, Retail Sales and Industrial Production data, which are due on Friday.
The NZD/USD pair remains on the defensive near 0.6055 during the early Asian session on Friday. The rising expectations for a smaller 25 basis points (bps) Federal Reserve (Fed) rate cut in November and stronger US economic data support the Greenback and weigh on the pair. Investors await the Chinese economic data on Friday, including Gross Domestic Product (GDP), Retail Sales and Industrial Production data for fresh impetus.
The US September Retail Sales rose more than expected, and August figures were revised higher. Additionally, the weekly Initial Jobless Claims were unexpectedly declined. These encouraging reports have prompted traders to raise their bets that the Fed will cut rates gradually at its next several meetings, lifting the US Dollar (USD) against the Kiwi.
“Strong data will encourage some pushback from Fed participants to cutting again in November, but Chair Jerome Powell is unlikely to be swayed from forging ahead with steady, quarter-point moves,” said Ellen Zentner at Morgan Stanley Wealth Management.
Data on Wednesday showed that New Zealand inflation eased to 2.2% YoY in the third quarter (Q3) from 3.3% in the previous reading. The figure moved back within the central bank’s 1% to 3% target band for the first time since early 2021. The Reserve Bank of New Zealand is anticipated to slash interest rates over the coming months, dragging the NZD lower.
The upcoming Chinese economic data might offer some hints about the pace of growth in China, a major trading partner to New Zealand. Any signs of weakness in the Chinese economy might exert some selling pressure on the China-proxy Kiwi in the near term.
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.