- NZD/USD weakens around 0.5635 in the early Asian session on Wednesday.
- Stronger US data suggested the Fed will likely slow the easing cycle.
- Investors will monitor how aggressive Trump’s tariff plans could be when he takes office.
The NZD/USD pair trades with slight losses near 0.5635 during the early Asian session on Wednesday. The upbeat US Services Purchasing Managers’ Index (PMI) for December suggested that the Federal Reserve (Fed) will likely slow the pace of its easing cycle, supporting the US Dollar (USD). Later on Wednesday, the Federal Open Market Committee (FOMC) Minutes will be in the spotlight.
Service sector activity in the United States accelerated in December. Data released by the Institute of Supply Management (ISM) showed that the Services PMI rose to 54.1 in December from 52.1 in November. This reading was stronger than the estimate of 53.3.
Meanwhile, U.S. job postings unexpectedly rose in November, although hiring slowed during the month. US JOLTS job openings rose to 8.09 million in November from 7.83 million previously and beat the market consensus of 7.7 million.
Reports indicated a generally stable labor market and a still robust services sector, which could convince the Fed to slow the pace of rate cuts, lifting the dollar. According to the CME FedWatch tool, the US rate futures market has priced in a 93.5% probability of a pause in rate cuts this month.
Investors will monitor how aggressive President-elect Donald Trump’s tariff policies could be when he takes office. Analysts believe that if US tariffs are generally lower than what Trump promised in the campaign and target only “critical” sectors, then global growth prospects should improve and the USD should weaken. Additionally, China’s support measures could boost the Kiwi as China is an important trading partner for New Zealand.
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.
