NZD/USD softens to near 0.5900 ahead of China’s trade deadline

NZD/USD slumps to around 0.5915 in Monday’s Asian session.
US July NFP report showed a deteriorating labor market, boosting the odds of a September Fed rate reduction.
New Zealand’s employment data will be the highlight later on Wednesday.

Lallalit Srijandorn FXStreet

The NZD/USD pair tumbles to near 0.5915 during the Asian trading hours on Monday. Tariff uncertainty between the United States (US) and China weighs on the China-proxy Kiwi. The downside might be limited due to a dismal US jobs report and rising September Federal Reserve (Fed) rate cut bets. Traders brace for New Zealand’s Unemployment Rate data, which is due later on Wednesday.

The weaker-than-expected US July employment data ramped up bets of imminent Fed rate cuts and acted as a headwind for the Greenback. Data on Friday showed US employment growth undershot expectations in July, while the Nonfarm Payrolls (NFP) count for the prior two months was revised down by a massive 258K jobs, indicating a sharp deterioration in US labour market conditions.

Markets are now pricing in nearly a 95% odds the Fed will ease rates next month owing to the weaker-than-expected US employment data, with over 63 basis points (bps) worth of cuts expected by December, according to Reuters.

China is facing an August 12 deadline to reach a tariff deal with US President Donald Trump, after Beijing and Washington reached a preliminary deal in June to end weeks of escalating tit-for-tat tariffs, per Reuters. Any signs of escalating trade tensions could drag the China-proxy Kiwi lower, as China is a major trading partner of New Zealand.

New Zealand’s employment data for the second quarter (Q2) will be published later on Wednesday. The Unemployment Rate in New Zealand is expected to tick higher to 5.3% in Q2 from 5.1% in the previous reading. Any surprise stronger-than-expected outcome could lift the New Zealand Dollar (NZD) against the US Dollar (USD) in the near term.

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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