- NZD/USD is trading on a stronger note around 0.5915 during the Asian session on Wednesday, up 0.17% on the day.
- China’s NBS manufacturing PMI for July was better than expected; non-manufacturing PMI was in line with consensus.
- The US Fed is widely expected to keep the rate in the 5.25%-5.50% range at its July meeting on Wednesday.
The NZD/USD pair is extending its recovery near 0.5915 in Asian trading hours on Wednesday. The pair is rising after China’s manufacturing Purchasing Managers’ Index (PMI) data for July, which came in stronger than expected. Investors will now turn their attention to the Federal Reserve’s (Fed) interest rate decision, which is scheduled for Wednesday.
Data released by the National Bureau of Statistics (NBS) on Wednesday showed that the country’s manufacturing PMI declined to 49.4 in July from 49.5 in June, beating expectations of 49.3. Meanwhile, the NBS non-manufacturing PMI fell to 50.2 in July from 50.5 previously, which is in line with the market consensus of 50.2. China’s better-than-expected PMI readings provide some support to the New Zealand Dollar (NZD) as China is a major trading partner of New Zealand.
However, growing speculation about an early interest rate cut by the Reserve Bank of New Zealand (RBNZ) could limit the pair’s upside in the near term. Investors are expecting rate cuts from the RBNZ, with traders pricing in 14 basis points (bps) of cuts in August, indicating a 55% chance of a rate cut soon.
As for the USD, the Fed will announce its interest rate decision later in the day, with no rate changes expected. Traders will be closely watching Fed Chair Jerome Powell’s comments at the press conference as Fed officials could set the stage for policy easing at their September meeting. Any dovish comments from Fed’s Powell could put some selling pressure on the Dollar and create a tailwind for NZD/USD. Traders are now pricing in a 100% chance of a Fed rate cut of at least a quarter percentage point in September, according to data from CME’s FedWatch tool.
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.
