NZD/USD extends its upside to near 0.5750, eyes on US PPI release
- NZD/USD gains traction to around 0.5740 in Thursday’s early Asian session.
- Trump's unpredictable announcements on tariffs undermine the US Dollar.
- China's deflationary pressures might cap the upside for China-proxy Kiwi.
The NZD/USD pair extends its upside to around 0.5740 during the early Asian session on Thursday, bolstered by the weaker US Dollar (USD). The US Producer Price Index (PPI) will be the highlight later on Thursday, followed by the weekly Initial Jobless Claims.
Worries over US President Donald Trump's unpredictable trade policies have spread uncertainty among investors, weighing on the Greenback. Investors are worried about US weaker economic data as well as big cuts to the government workforce and government spending. Goldman Sachs analysts last week raised its recession chance from 15% to 20%, citing it saw policy changes as the key risk to the economy.
On the other hand, concerns over persistent deflationary pressures in China, New Zealand's biggest export market, undermine the Kiwi. China's Consumer Price Index (CPI) in February missed expectations and fell at the sharpest pace in 13 months, while producer price deflation persisted.
"China's economy still faces deflationary pressure. While sentiment was improved by the developments in the technology space, domestic demand remains weak," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
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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