NZD/USD languishes near multi-week low, below mid-0.6100s ahead of Chinese trade data

NZD/USD struggles to attract any meaningful buyers amid some follow-through USD strength.
Reduced bets for a 50 bps Fed rate cut in September push the USD closer to the monthly top.
Traders now look to Chinese trade data, though the focus remains on US CPI on Wednesday.

Haresh Menghani FXStreet

The NZD/USD pair remains under some selling pressure for the third straight day on Tuesday and currently trades around the 0.6140-0.6135 region, just above a three-week low touched the previous day.

Traders have been scaling back their bets for a larger, 50 basis points (bps) interest rate cut by the Federal Reserve (Fed) in September following the release of mixed US jobs report on Friday. This, in turn, pushes the USD Index (DXY), which tracks the Greenback against a basket of currencies, closer to the monthly peak touched last week and is seen weighing on the NZD/USD pair. That said, bets for an imminent start of the Fed's rate-cutting cycle, along with a positive risk tone, could cap the USD and lend support to the currency pair.

Investors also seem reluctant and prefer to wait for the release of the US inflation figures before placing fresh directional bets around the NZD/USD pair. The crucial US Consumer Price Index (CPI) is due on Wednesday, which, along with the Producer Price Index (PPI) on Thursday, might influence market expectations about the size of the Fed's rate cut move later this month and the future policy path. This, in turn, will play a key role in driving the USD demand and help in determining the near-term trajectory for the currency pair.

In the meantime, traders on Tuesday will take cues from Chinese Trade Balance figures. Any meaningful divergence from the expected figures could have an impact on antipodean currencies, including the New Zealand Dollar (NZD) and produce short-term trading opportunities around the NZD/USD pair. The immediate market reaction, however, is more likely to be limited, warranting some caution before positioning for any meaningful recovery.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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