NZD/USD extends gains above 0.6060 on hopes of a Sino-US trade deal

The New Zealand Dollar appreciates ahead of the US-China meeting in London.
Hopes of a trade deal are supporting risk-related currencies on Monday.
The US Dollar is retracing its post-NFP rallies.

Guillermo Alcala FXStreet

The risk-sensitive New Zealand Dollar is outperforming all its peers on Monday, fuelled by hopes that the US-China talks may render an agreement to bring some clarity to the global trade scenario. The NZD7USD has rallied almost 0.7%, nearing year-to-date highs at 0.6080.

Representatives from the US and China are meeting in London later today, aiming to ease recent tensions and find common ground to normalise their trade relationships. A positive tweet from US President Trump over the weekend has boosted hopes of some fruitful outcome, which is fuelling demand for the China proxies NZD and AUD.

The US Dollar is giving post-payrolls gains away

The Greenback, on the other hand, has given away most of the ground taken on Friday, as the enthusiasm of the stronger-than-expected US Nonfarm Payrolls report eased.

Friday’s data revealed that the US economy created 139,000 new jobs in May, beating expectations of a 130,000 reading. Apart from that, unemployment remained unchanged at 4.2% with wage inflation rising at a steady 3.9% yearly pace against expectations of a slowdown to 3.7%.

These numbers eased concerns of an immediate recession in the US, triggered by an array of downbeat releases earlier in the week, and endorsed the Federal Reserve’s hawkish stance. The US Dollar rallied across the board following the data.

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

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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