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NZD/USD remains weak below 0.5900, all eyes on US PCE data

  • NZD/USD weakens near 0.5890 in Friday’s early Asian session. 
  • The US GDP expanded at a 2.8% annualized pace in Q2, above the 2.1% forecast.
  • Disappointed Chinese data and growing odds of a rate cut by the RBNZ drag the Kiwi lower. 

The NZD/USD pair remains under some selling pressure around 0.5890 during the early Asian session on Friday. The stronger US economic data has trimmed some rate cut expectations in September, which provides some support for the US Dollar (USD). Later on Friday, the release of the Personal Consumption Expenditures (PCE) - Price Index for June will be in the spotlight. 

Economic activity in the United States was firmer than expected during the second quarter (Q2), the US Bureau of Economic Analysis reported on Thursday. US Gross Domestic Product (GDP) grew at 2.8% annualized pace adjusted for seasonality and inflation from 1.4% in the previous reading, exceeding forecasts of 2%. 

Federal Reserve (Fed) officials are expected to hold interest rates steady at its upcoming monetary policy meeting next week, and market pricing forecast the first cut in September. Investors will take more cues from the US PCE data for June, which is likely to drop. The softer PCE inflation data could pave the way for the Fed to lower its key interest rate as soon as September and weaken the Greenback. 

On the Kiwi front, the rising bets that the Reserve Bank of New Zealand (RBNZ) would cut its key Official Cash Rate (OCR) in August weigh on the New Zealand Dollar (NZD). Furthermore, the fear of a Chinese economic slowdown continues to undermine the Kiwi as China is a major trading partner of New Zealand. 

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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