NZD/USD gathers strength to near 0.5750 on softer US Dollar
- NZD/USD strengthens to around 0.5745 in Monday’s early Asian session.
- Concerns over the US economic slowdown weigh on the US dollar and create a tailwind for the pair.
- The Chinese government announced stimulus plans to boost consumption, supporting the China-proxy Kiwi.
The NZD/USD pair gathers strength to around 0.5745 during the early Asian session on Monday, bolstered by the weaker US Dollar (USD) and Chinese stimulus. Traders await the preliminary reading of the US S&P Global Manufacturing Purchasing Managers Index (PMI) for March, which is due later on Monday.
The Greenback remains under selling pressure amid worries over the hit to US economic growth from the US President Donald Trump administration's trade policies. US President Donald Trump has declared April 2 to be "Liberation Day" for the US, when he will implement so-called reciprocal tariffs that seek to equalize US tariffs with those charged by trading partners, as well as tariffs on sectors such as automobiles, pharmaceuticals, and semiconductors, which he has repeatedly stated would be enacted on that day.
On the Kiwi front, the ruling Chinese Communist Party’s (CCP) central committee and state council announced ambitious plans to “vigorously boost consumption” by putting up pay and reducing financial burdens in its latest attempt to increase consumer confidence and lift its struggling economy. This, in turn, might boost the China-proxy New Zealand Dollar (NZD),a as China is a major trading partner to Australia.
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.