- NZD/USD attracts some buyers to near 0.5600 in the early Asian session on Monday, up 0.20% on the day.
- The PBoC left the one-year and five-year LPR unchanged on Monday.
- The Fed’s dovish expectation could weigh on the USD and create a tailwind for the pair.
The NZD/USD pair remains in positive territory around 0.5600 during Asian trading hours on Monday. The Kiwi remains strong after the People’s Bank of China (PBOC) announced to keep its Lending Prime Rates (LPR) unchanged on Monday. The market could turn cautious as investors prepare for policy announcements ahead of President-elect Donald Trump’s inauguration.
Early on Monday, the Chinese central bank decided to maintain the one-year and five-year LPR at 3.35% and 3.85%, respectively. However, the focus will be on Trump’s tariff policies. In December, Trump said he would impose tariffs of up to 10% on global imports and 60% on Chinese goods, plus a 25% surcharge on imports of Canadian and Mexican goods.
Any development in the Chinese economy usually impacts the Kiwi, as China is New Zealand’s largest trading partner. “A strong start to Trump’s new term could make markets nervous and give more support to the dollar,” said Corpay currency strategist Peter Dragicevich.
On the other hand, softer US inflation data and dovish comments from Federal Reserve (Fed) officials could limit the dollar’s upside. Fed Governor Christopher Waller highlighted favorable inflation results that could justify a rate cut in the near term, adding that a rate cut in March remains a possibility if incoming data supports further price moderation.
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 policy of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. The evolution of the Chinese economy tends to move the Kiwi because China is New Zealand’s largest trading partner. The bad news for the Chinese economy will likely mean fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor moving the NZD is dairy product 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 drive up bond yields, making investors more attractive to invest in the country and thus boosting the NZD. On the contrary, lower interest rates tend to weaken the NZD. The so-called rate differential, or what 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.
The release of macroeconomic data in New Zealand is 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 may 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 overall market risks to be low and are optimistic about growth. This usually translates into a more favorable 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.
