NZD/USD weakens to below 0.5950 ahead of RBNZ Inflation Expectations release
- NZD/USD softens to near 0.5930 in Thursday’s Asian session.
- Trump threatens China with an extra 25% tariff over Russian oil buys.
- RBNZ Inflation Expectations for Q3 and the US weekly Initial Jobless Claims report will be the highlights later on Thursday.
The NZD/USD pair trades on a softer note around 0.5930 during the Asian trading hours on Thursday. The New Zealand Dollar (NZD) softens against the US Dollar (USD) amid renewed tensions between the United States (US) and China. Traders brace for the Reserve Bank of New Zealand (RBNZ) Inflation Expectations for the third quarter (Q3) and the US weekly Initial Jobless Claims report, which are due later on Thursday.
US President Donald Trump said late Wednesday that he could impose further tariffs on China similar to the 25% levies announced earlier on India over its purchases of Russian oil, depending on what happens, per Reuters. Traders will closely watch the developments surrounding US tariffs. Any signs of escalating trade tensions between the world’s two largest economies could exert some selling pressure on the China-proxy Kiwi, as China is a major trading partner of New Zealand.
Furthermore, soft New Zealand labor data strengthens the RBNZ rate cut case, which could create a headwind for the NZD. The country’s Unemployment Rate rose to 5.2% in Q2 from 5.1% in Q1, Statistics New Zealand showed on Wednesday. The figure came in below the market consensus of 5.3%.
On the other hand, an increased expectation of a US Federal Reserve (Fed) rate cut might drag the Greenback lower and cap the downside for the pair. The weaker-than-expected US Nonfarm Payrolls (NFP) report for July pointed to a cooling labor market and fueled speculations that the Fed will resume its rate-cutting cycle in September. Markets have priced in nearly a 95% possibility of a 25 basis point (bps) cut at the September meeting, up from 48% a week ago, according to the CME FedWatch tool.
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.