NZD/USD softens below 0.5700 ahead of US NFP release

NZD/USD weakens to around 0.5670 in Friday’s early European session.
The renewed trade war between the US and China spurs safe-haven demand and weighs on the China-proxy Kiwi.
The US January NFP report will be in the spotlight later on Friday.

Lallalit Srijandorn FXStreet

The NZD/USD pair trades in a negative territory near 0.5670 during the early European trading hours on Friday, pressured by a modest rebound of the US Dollar (USD). Traders prefer to wait on the sidelines amid the uncertainty ahead of key US Nonfarm Payrolls (NFP) data.

Following China's measured retaliation to US tariffs, President Donald Trump has said that he is not in a rush to talk with Chinese President Xi Jinping. On Tuesday, China's finance ministry issued a package of tariffs on a variety of US items, including crude oil, agricultural equipment, and certain automobiles, in response to US President Donald Trump's announcement of a 10% tariff on Chinese imports. Any signs of rising trade war tensions between the US and China could exert some selling pressure on the New Zealand Dollar (NZD), as China is a major trading partner to New Zealand.

The US Federal Reserve (Fed) signaled that it had no plans to cut interest rates quickly, amid uncertainty over sticky inflation and Trump’s policies. All eyes will be on the highly-anticipated US Nonfarm Payrolls on Friday for more cues about the US interest rate outlook. In case of a weaker-than-expected outcome, this could drag the USD lower broadly. Economists expect the US economy to have added around 170,000 jobs in January, while the unemployment rate is estimated to hold steady at 4.1%.

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

Lallalit Srijandorn

FXStreet

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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