- NZD/USD retreats from a multi-day high touched this Friday, though it lacks follow-through.
- Trade jitters and reduced Fed rate cut bets underpin the USD and exert pressure on the Kiwi.
- The downtick lacks bearish conviction, warranting caution before positioning for deeper losses.
The NZD/USD pair attracts some sellers following an intraday uptick to the 0.6045 area, back closer to the weekly high, and erodes a part of the previous day’s strong gains. Spot prices, however, managed to hold above the 0.6000 psychological mark through the early European session on Friday.
In a dramatic escalation of trade wars, US President Donald Trump announced a 35% tariff on Canadian imports starting August 1. The decision was conveyed in a letter, which marks the latest in a string of over 20 similar tariff notices Trump has issued since Monday, and comes on top of a 50% tariff on US copper imports, which, in turn, weighs on investors’ sentiment. This, along with diminishing odds for an immediate interest rate cut by the Federal Reserve (Fed), acts as a tailwind for the safe-haven US Dollar (USD) and turns out to be a key factor undermining the risk-sensitive Kiwi.
The stronger US Nonfarm Payrolls (NFP) report released last Thursday, along with lower-than-expected US Weekly Initial Jobless Claims, pointed to a still resilient US labor market. Moreover, Minutes from the June 17-18 FOMC policy meeting signaled on Wednesday no urgency for the US central bank to cut rates. However, the Reserve Bank of New Zealand’s (RBNZ) widely expected decision to hold rates steady earlier this week continues to offer some support to the New Zealand Dollar (NZD). This, in turn, could help limit any further downside for the NZD/USD pair.
There isn’t any relevant market-moving economic data due for release on Friday, leaving the USD at the mercy of comments from Fed officials. Apart from this, trade-related developments might influence the USD price dynamics and provide some impetus to the NZD/USD pair heading into the weekend. Nevertheless, spot prices remain on track to register modest weekly losses, and the fundamental backdrop warrants some caution for bullish traders.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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