NZD/USD holds positive ground above 0.5600 as PBOC holds rates

NZD/USD rebounds to near 0.5605 in Thursday’s early Asian session.
PBOC left its Loan Prime Rates unchanged in November.
The delayed US September Nonfarm Payrolls report will be the highlight on Thursday.

Lallalit Srijandorn FXStreet

The NZD/USD pair recovers some lost ground around 0.5605 during the early European session on Thursday. The upside for the pair might be limited, as the imminent rate cut from the Reserve Bank of New Zealand (RBNZ) could weigh on the New Zealand (NZD) against the US Dollar (USD). The US September employment report will take center stage later on Thursday.

On Thursday, the People’s Bank of China (PBOC) decided to leave its Loan Prime Rates (LPRs) unchanged on Thursday. The one-year and five-year LPRs were at 3.00% and 3.50%, respectively.

New Zealand’s Unemployment Rate rose to 5.3% in the September quarter, indicating a softening labor market. This, along with a struggling domestic economy and a weakening inflation outlook, pointed to underlying weakness in the economy and boosted the RBNZ rate cut bets. The prospect of the RBNZ's rate-cutting policy might drag the Kiwi lower in the near term.

The Federal Open Market Committee (FOMC) released its minutes from the October meeting on Wednesday, indicating a divide among officials over whether to lower interest rates. Many participants were in favor of lowering the target range, while some said they "could have also supported" keeping rates unchanged, and "several were against" any reduction.

The delayed US September employment report from the Bureau of Labor Statistics (BLS) will finally be published after the government shutdown. Economists expect the report to show that the US added about 50,000 new jobs in September. The Average Hourly Earnings are projected to increase by 0.3% MoM in September, while the Unemployment Rate is estimated to stay at 4.3%.

This report could provide clues about the potential for an interest-rate cut next month. In case of a weaker-than-expected outcome, this could undermine the Greenback and act as a tailwind for the pair.

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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