NZD/USD gains to near 0.5680 as US Dollar continues to underperform
- NZD/USD bounces back and turns positive to near 0.5680 as the US Dollar faces a strong sell-off.
- Investors assess the US economic outlook amid an escalating global trade war.
- RBNZ Adrian Orr resigned before the completion of his second five-year term
The NZD/USD pair recovers its intraday losses and turns positive in European trading hours on Wednesday. The Kiwi pair rises to near 0.5680 as the US Dollar (USD) extends its downside, with investors assessing the United States (US) economic outlook amid intensifying President Donald Trump-led-global trade war.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to near 105.00. Investors expect the inflationary impact of Trump’s tariffs will reduce the purchasing power of individuals. Such a scenario would weigh on economic growth.
China has announced retaliatory tariffs on the US for imposing an additional 10% levies on them, which went into effect on Tuesday. The consequences of escalation in trade war between China and the US will also be borne by the New Zealand (NZ), given its significant reliance on exports to China.
In the domestic region, Reserve Bank of New Zealand (RBNZ) Adrian Orr resigned three years before the completion of his second five-year term.
In Wednesday’s session, investors will focus on the US ADP Employment and the ISM Services PMI data for February, which will be published in the North American session. Economists expect private employers to have 140K fresh workers, lower than 183K payrolls seen in January. The Services OMI, which gauges activities in the services sector, is estimated to have fallen to 52.6 from 52.8 in January. The US economic data will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook.
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.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
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