New Zealand Dollar declines below 0.5900 amid mixed Chinese PMI data, Middle East tensions in focus

NZD/USD softens to around 0.5875 in Wednesday’s Asian session.
China’s official PMI ‌dropped to 49.0 in February, weaker than expected.
Rising Middle East tensions continue to drag the Kiwi lower against the US Dollar.

Lallalit Srijandorn FXStreet

The NZD/USD pair attracts some sellers to near 0.5875 during the Asian trading hours on Wednesday. The New Zealand Dollar (NZD) remains weak against the US Dollar (USD) after the mixed Chinese economic data. Traders will shift their attention to the US February ISM Services Purchasing Managers Index (PMI), which is due later on Wednesday.

China’s official Manufacturing PMI fell to 49.0 in February, compared to 49.3 in January. The reading came in below the market consensus of 49.1 in the reported month. Meanwhile, the NBS Non-Manufacturing PMI rose to 49.5 in February, compared to 49.4 in the previous reading, weaker than the 49.8 expected.

Additionally, China's RatingDog Manufacturing PMI climbed to 62.1 in February from 50.3 in January. This figure came in better than the expectation of 50.1. The RatingDog Services PMI rose to 56.7 in February, better than the estimation and the previous reading of 52.3.

Escalating tensions in the Middle East have sparked significant risk aversion, which boosts safe-haven currencies such as the Greenback and creates a headwind for the pair. The United States (US) and Israel targeted Iran's top-tier leadership and nuclear infrastructure over the weekend. US President Donald Trump said on Monday that combat operations will continue in Iran until America’s objectives are met.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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