NZD/USD hits lows near 0.5760 amid a stronger US Dollar
- NZD/USD drops for the sixth consecutive day to weekly lows near 0.5760.
- The US Dollar is going through a moderate recovery following the release of the Fed's minutes.
- Upbeat business activities from China have failed to ease bearish pressure on the Kiwi.
The New Zealand Dollar is trading lower for the sixth consecutive day against a somewhat stronger US Dollar. The pair extends its reversal from last week’s highs above 0.5850 to daily lows at 0.5763 so far.
The US Dollar is drawing support from the release of the FOMC minutes, which revealed a wide divergence among committee members and cast doubt about the timing of the next monetary easing move.
Most participants voted in favor of cutting interest rates by a quarter point on December 10, with three officials calling for steady rates, posting the highest number of dissenters since 2019.
The minutes of the meeting revealed that the majority of the committee agreed on the convenience of lowering borrowing costs to support a deteriorating labour market, but conditioned further rate cuts on a steady decline in inflationary pressures.
The kiwi, on the other hand, has failed to draw any significant support from the upbeat business activity figures from China, New Zealand’s main trading partner. Chinese NBS PMI figures revealed that manufacturing activity in the Asian leading economy improved 0.9 points to 50.1. Likewise, the Non-Manufacturing PMI rose 0.7 points to 50.2, both of them returning to levels consistent with a mild expansion.
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.