NZD/USD gathers strength above 0.5650 as China unveils fresh stimulus measures
- NZD/USD recovers to around 0.5670 in Thursday’s Asian session.
- Trump tariff threats could weaken the Kiwi in the near term.
- Chinese officials announced fresh measures to boost long-term funds for equity markets.
The NZD/USD pair trades in positive territory around 0.5670 during the early Asian session on Thursday. The New Zealand Dollar (NZD) edges higher following the announcement about fresh stimulus measures from China and New Zealand. Traders will keep an eye on the US weekly initial Jobless Claims data, which is due later on Thursday.
Trump said that the administration was considering imposing a 10% tariff on Chinese-made goods arriving in the US from as early as 1 February. This action came a day after Trump stated that he was thinking about introducing 25% tariffs on imports from Mexico and Canada on February 1. The concerns about the renewed trade war between the US and China, along with the Trump tariff threats, could exert some selling pressure on the China-proxy Kiwi, as China is a major trading partner to New Zealand.
On the other hand, fresh stimulus measures from New Zealand and China might help limit the NZD’s losses. Early Thursday, Prime Minister Christopher Luxon announced that the country will loosen foreign investment regulations to attract and support foreign investors into New Zealand.
Additionally, Chinese officials on Thursday introduced several measures to stabilize its stock markets, including allowing pension funds to increase investments in domestic equities. Chinese authorities said there will be hundreds of billions of Yuan in new long-term capital for A-shares every year from state-owned insurance companies. Large state-owned commercial insurance companies still have room to increase their capital market investment.
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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