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NZD/USD holds positive ground above 0.5750 on upbeat Chinese Services PMI data

  • NZD/USD gains momentum to near 0.5750 in Wednesday’s early European session.
  • Upbeat Chinese Services PMI data and less dovish-than-expected stance from the RBNZ support the New Zealand Dollar. 
  • US ADP Employment Change and ISM Services PMI reports will be in the spotlight later on Wednesday. 

The NZD/USD pair attracts some buyers to around 0.5750 during the early European session on Wednesday. The upbeat Chinese economic data provides some support to the China-proxy Kiwi against the US Dollar (USD). The attention will shift to the release of the US ADP Employment Change and ISM Services Purchasing Managers Index (PMI) data later on Wednesday. 

China's Services PMI declined to 52.1 in November versus 52.6 prior, according to RatingDog on Wednesday. This reading came in stronger than the market expectations of 52.0. The upbeat Chinese economic data could underpin the New Zealand Dollar (NZD), as China is a major trading partner for New Zealand. 

The Reserve Bank of New Zealand (RBNZ) lowered its Official Cash Rate (OCR) by 25 basis points (bps) to 2.25% last week, as widely anticipated. The New Zealand central bank signaled that future rate changes will depend on the economic and inflation outlook, and analysts believe the rate-cutting cycle is likely finished for now. This, in turn, might contribute to the NZD’s upside. 

Meanwhile, traders increase their bets on the Federal Reserve (Fed) interest rate reduction this month due to weaker US economic data, cooling labour market, and dovish comments from Fed policymakers. Fed funds futures traders are now pricing in nearly an 89% odds of a rate cut at the conclusion of the Fed's December 9-10 meeting, up from a 71% chance a week ago, according to the CME FedWatch Tool. 

Fed officials will enter a quiet period ahead of the Fed meeting. Traders await the upcoming US economic data for fresh impetus. The US ADP Employment Change and ISM Services PMI reports on Wednesday could offer some hints about the labor market and the US interest rate path. If the reports come in stronger than expected, this might help limit the Greenback’s losses in the near term.  

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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