- NZD/USD edges lower as Business NZ PSI drops to 40.2 in June, marking its fourth consecutive monthly decrease.
- Kelly Eckhold, Chief Economist at Westpac, anticipates that the RBNZ will begin easing policy in February 2025.
- The US Dollar improves due to improved risk aversion following the attempted assassination of former US President Trump on Saturday.
NZD/USD depreciates to near 0.6100 during the Asian session on Monday. This decline can be linked to the Business NZ Performance of Services Index (PSI), which dropped to 40.2 in June, marking its fourth consecutive monthly decrease and the lowest activity level for a month without a COVID lockdown. The previous reading was 42.6.
Kelly Eckhold, Chief Economist at Westpac, noted in this week's analysis and forecasts that the Reserve Bank of New Zealand's (RBNZ) growth projections have been notably downgraded. More importantly, the RBNZ appears increasingly confident that annual inflation will soon fall below 3%. Eckhold expects the RBNZ to start easing policy in February next year, though an earlier move is possible and will depend on incoming data.
In China, New Zealand's top trading partner, Q2 GDP figures are expected later on Monday. Market forecasts indicate that the economy will slow down due to ongoing internal and external challenges. Meanwhile, the Communist Party of China will begin the Third Plenum today, a crucial meeting that could determine the country's long-term economic direction.
The US Dollar (USD) recovery is putting pressure on the NZD/USD pair. Risk aversion has intensified following the attempted assassination of former US President Donald Trump on Saturday. Analysts suggest that if this incident boosts Trump's election prospects, it could lead to so-called 'Trump-victory trades,' which may include a stronger US Dollar and a steeper US Treasury yield curve, per Reuters.
Despite hotter-than-expected US Producer Price Index (PPI) figures on Friday, the USD remained largely unaffected. The Core PPI rose 3.0% year-over-year in June, exceeding the expected 2.5% and the previous reading of 2.6%. Moreover, the preliminary Michigan Consumer Sentiment Index fell short of expectations in July, registering at 66.0 compared to the forecasted 68.5 and the previous 68.2.
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.
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