- NZD/USD appreciates as traders closely monitor signs of a potential recovery in China's economy.
- Chinese President Xi Jinping announced on Tuesday that China will adopt more proactive policies in 2025 to stimulate economic growth.
- US weekly Initial Jobless Claims and S&P Global Manufacturing PMI for December will be eyed on Thursday.
NZD/USD extends its gains for the second successive session, trading around 0.5610 during the early European hours on Thursday. This upside of the Kiwi pair is attributed to the improved New Zealand Dollar (NZD) as traders are cautiously monitoring a potential recovery in China's economy following President Xi Jinping's pledge to prioritize growth. As close trade partners, any fluctuations in China's economy tend to impact Australian markets.
In his New Year's address on Tuesday, Xi stated that China would implement more proactive policies to promote growth in 2025, according to Reuters. While China's manufacturing activity showed minimal growth in December, services and construction sectors have seen a recovery. The data indicates that policy stimulus is beginning to have an impact on certain sectors, as China prepares for new trade risks stemming from tariffs proposed by US President-elect Donald Trump.
China's Caixin Manufacturing PMI unexpectedly dropped to 50.5 in December, down from 51.5 in November. The market had anticipated a reading of 51.7 for the month. Wang Zhe, an economist at Caixin Insight Group, commented, “Supply and demand expanded. Manufacturers’ output and demand continued to grow as the market improved. The gauge for output remained in expansionary territory for the 14th consecutive month, while total new orders increased for the third straight month.”
Additionally, the upside of the NZD/USD pair is bolstered by the softer US Dollar (USD). The US Dollar Index (DXY), which tracks the value of the US Dollar against six major currencies, trades around 108.30 after pulling back from its multi-year high of 108.58, reached on Tuesday.
The Federal Reserve may adopt a more cautious outlook regarding further rate cuts in 2025, signaling a shift in its monetary policy stance. This change reflects uncertainties surrounding potential policy adjustments in light of the anticipated economic strategies of the incoming Trump administration.
Traders will likely observe the US weekly Initial Jobless Claims and S&P Global Manufacturing PMI for December, scheduled to be released later in the North American session.
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.
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