NZD/USD gathers strength to near 0.5600, Trump 2.0 in focus
- NZD/USD attracts some buyers to near 0.5600 in Monday’s early Asian session, up 0.20% on the day.
- The PBoC left the one-year and five-year Loan Prime Rates (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 holds positive ground around 0.5600 during the Asian trading hours on Monday. The Kiwi remains strong after the People’s Bank of China (PBOC) announced to leave its Loan Prime Rates (LPRs) unchanged on Monday. The market might turn cautious as investors brace for the policy announcements ahead of President-elect Donald Trump’s inauguration.
Early Monday, the Chinese central bank decided to hold the one-year and five-year LPR steady at 3.35% and 3.85%, respectively. However, the attention will shift to Trump's tariff policies. In December, Trump said that he would impose tariffs of as much as 10% on global imports and 60% on Chinese goods, plus a 25% import surcharge on Canadian and Mexican products.
Any development in the Chinese economy generally impacts Kiwi, as China is New Zealand's largest trading partner. "A forceful start to Trump's new term could rattle nerves and give the dollar more support," noted Corpay currency strategist Peter Dragicevich.
On the other hand, the softer US inflation data and dovish comments from the US Federal Reserve (Fed) officials might cap the upside for the Greenback. Fed Governor Christopher Waller highlighted favorable inflation results that could warrant a rate reduction in the near term, adding that a rate cut in March remains a possibility if incoming data support further price moderation.
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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