- NZD/USD remains stable as traders await key economic data from the United States (US).
- Business NZ’s manufacturing PMI fell to 41.1 in June, marking the 15th consecutive month of contraction.
- The U.S. Consumer Price Index fell 0.1% month-on-month in June, marking its lowest level in more than three years.
NZD/USD is holding around 0.6100 in early European trading hours on Friday as investors react to weak New Zealand PMI data. Business NZ Manufacturing PMI fell to 41.1 in June from 47.2 in May. This has marked the 15th consecutive month of contraction and the third lowest value for a month without a COVID lockdown. Additionally, traders are awaiting the Michigan Consumer Sentiment Index and the US Producer Price Index (PPI), both due on Friday, for further insights into the US economy.
The NZD/USD pair received support from the weaker-than-expected US Consumer Price Index (CPI) data for June, which has raised expectations for a possible Federal Reserve (Fed) rate cut in September. The core CPI, which excludes volatile food and energy prices, rose 3.3% year-on-year in June, compared with May’s 3.4% increase and the same expectation. Meanwhile, the core CPI rose 0.1% month-on-month, versus the expected and previous increase of 0.2%.
Additionally, Chicago Federal Reserve Bank President Austan Goolsbee said Thursday that the U.S. economy appears to be on track to achieve 2% inflation. This suggests that Goolsbee is gaining confidence that the time to cut interest rates may be drawing near. He also stated, “My view is that this is the path to 2%,” according to Reuters.
Earlier this week, the Reserve Bank of New Zealand (RBNZ) held its cash rate at 5.5% on Wednesday, as expected. However, it hinted at possible rate cuts in August if inflation eases as anticipated. The New Zealand Dollar (NZD) could come under pressure due to the RBNZ’s dovish monetary policy statement.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the health of the New Zealand economy and the policies of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. Developments in the Chinese economy tend to move the Kiwi because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely translate into fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor that moves the NZD is dairy prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also push up bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate spread, or how rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and can encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive that overall market risks are low and are optimistic about growth. This often translates into a more favourable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
