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NZD/USD holds positive ground above 0.5750 after mixed Chinese data

  • NZD/USD gains ground to around 0.5775 in Monday’s Asian session, adding 0.30% on the day. 
  • China’s November Industrial Production climbed 5.4%, Retail Sales rose 3.0%. 
  • A possible hawkish rate cut by the Fed could underpin the Greenback.  

The NZD/USD pair attracts some buyers to near 0.5775, snapping the four-day losing streak during the Asian trading hours on Monday. The attention will shift to the preliminary US December Purchasing Managers Index (PMI) for fresh impetus, which is due later on Monday. 

Data released by the National Bureau of Statistics of China showed on Monday that the nation’s Industrial Production rose 5.4% YoY in November, compared to 5.3% in October. This reading came in stronger than the expectation of 5.3%. Meanwhile, Retail Sales rose 3.0% YoY in November versus 4.8% prior, below the market consensus of 4.6%. The New Zealand Dollar (NZD) remains firm in an immediate reaction to the mixed Chinese economic data.

Chinese authorities announced on Thursday that they will unveil a bigger fiscal deficit to boost consumption next year following the Central Economic Work Conference. This follows a commitment made at the huddle of the decision-making Politburo last week to pump more stimulus into the world's second-largest economy. This, in turn, could underpin the China-proxy Kiwi, as China is a major trading partner to New Zealand. 

On the USD’s front, a possible hawkish rate cut by the Federal Reserve (Fed) at its December meeting on Wednesday might support the US Dollar (USD) and act as a headwind for the pair. The cautious approach reflects a strengthening US economy, noted by Chair Jerome Powell. Investors see the Fed lowering the interest rates by a quarter of a percentage point at the December meeting, with more attention focused on policymakers' new economic projections released alongside the decision.

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

Lallalit Srijandorn

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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