- NZD/USD trades lower near 0.5590 in the early Asian session on Friday.
- Initial claims for unemployment benefits in the US fell to 211,000 compared to the expected 222,000.
- Trump’s tariffs and concerns about China’s economic recovery undermine the Kiwi, China’s proxy.
The NZD/USD pair remains defensive around 0.5590 during the early Asian session on Friday, pressured by the firmer US Dollar. Investors are preparing for the release of the US ISM Manufacturing Purchasing Managers’ Index (PMI) for December, due out later on Friday.
Meanwhile, the US Dollar Index (DXY), a measure of the value of the US dollar relative to the currencies of its major trading partners, rose near 109.50, its strongest level since November 2022.
Optimism around the US economy and the cautious stance of the US Federal Reserve (Fed) could support the USD in the near term. The US central bank indicated it will be more cautious in cutting interest rates as inflation remains stubbornly above its 2% target and the economy remains robust.
Data released by the US Department of Labor (DOL) on Thursday showed that initial jobless claims for the week ending December 28 decreased to 211,000, compared to the previous week’s figure of 220,000 (revised from 219,000). This reading was below the market consensus of 222,000.
Higher tariffs threatened by US President-elect Donald Trump and instability in the Chinese economy could weigh on the New Zealand Dollar (NZD), China’s proxy, as China is a major trading partner for New Zealand . China’s latest Caixin Manufacturing Purchasing Managers’ Index (PMI) showed the country’s manufacturing sector grew in December, but at a slower pace than expected. This reading raised concerns about a slower economic recovery in the world’s second-largest economy and could create a headwind for the Kiwi.
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.
