NZD/USD edges higher to near 0.5750 despite weakened risk sentiment
- The NZD/USD pair may face challenges as escalating global trade tensions weaken investor risk appetite.
- China's retaliatory tariffs of up to 15% on select U.S. agricultural products took effect on Monday.
- San Francisco Fed President Mary Daly cautioned that growing business uncertainty could dampen demand in the US economy.
NZD/USD gains ground after registering losses in the previous session, trading around 0.5730 during the early European hours on Monday. However, the upside of the NZD/USD pair could be limited as rising global trade tensions dampened investors’ risk appetite.
China's retaliatory tariffs of up to 15% on certain US agricultural products went into effect on Monday, in response to last week's US tariff increase from 10% to 20% on Chinese imports, given China’s role as New Zealand’s largest trading partner.
Additionally, the NZD faces headwinds following disappointing Chinese Consumer Price Index (CPI) data for February released on Saturday. China’s Consumer Price Index fell by 0.7% year-over-year in February, exceeding market expectations of a 0.5% decline and reversing the 0.5% increase recorded in the previous month. On a monthly basis, CPI inflation stood at -0.2% in February, down from January’s 0.7% and softer than the expected -0.1%.
On Friday, the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls (NFP) rose by 151,000 in February, falling short of the expected 160,000. January’s job growth was also revised downward to 125,000 from the previously reported 143,000.
San Francisco Fed President Mary Daly said late Sunday that increasing uncertainty among businesses could weaken demand in the US economy but does not warrant a change in interest rates. Daly noted that business leaders in her district are expressing growing concerns about the economy and policy, which research indicates could dampen demand.
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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