New Zealand Dollar softens to near 0.5650 as US government looks to reopen | FXStreet
The NZD/USD pair declines to near 0.5655 during the Asian trading hours on Thursday. The US Dollar (USD) strengthens against the New Zealand Dollar (NZD) after the US House passes a bill to end the government shutdown. Traders await the Chinese October Retail Sales and Industrial Production reports, which will be released later on Friday.
The House of Representatives voted 222 to 209 to approve a funding package and end the longest government shutdown in US history on Wednesday. It comes after the Senate voted to pass the bill on Monday. The bill will head to US President Donald Trump’s desk for signature. The legislation extends funding for most agencies until January 30 and includes three full-year funding bills for other parts of the government.
Nonetheless, the reopening will lead to an avalanche of US economic data releases that were delayed due to the shutdown, including the highly anticipated monthly employment report. Traders believe that resumption of economic data will point to a slowing economy and that would prompt the Federal Reserve (Fed) to reduce interest rates in December, which might weigh on the Greenback.
The Kiwi is on the brink of becoming the first major developed-market currency to lose gains versus the US Dollar this year, as aggressive Reserve Bank of New Zealand (RBNZ) interest-rate cuts weigh on sentiment amid a weakening economy.
The New Zealand central bank cut its Official Cash Rate (OCR) by 50 basis points (bps) to 2.5% in the October meeting, following weaker-than-expected GDP data. Recent data revealed that the New Zealand Unemployment Rate rose to a near nine-year high of 5.3%, which supports the case for further RBNZ rate reductions. This, in turn, might continue to undermine the NZD against the USD 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.