NZD/USD rises above 0.5600 due to risk-on sentiment, China’s stimulus measures
- NZD/USD appreciates as the NZD receives support from China's recent stimulus measures.
- PBOC Governor Pan Gongsheng emphasized that China will continue to be a driving force for the global economy.
- Market sentiment improves following reports of the incoming Trump administration considering a gradual increase in import tariffs.
NZD/USD extends its gains for the second successive day, trading around 0.5610 during the early European hours on Tuesday. The upside of the NZD/USD pair could be attributed to China's recent stimulus measures, given the close trading relationship between New Zealand and China, any changes in China's economic conditions could significantly influence antipodean markets.
People's Bank of China (PBOC) Governor Pan Gongsheng stated on Monday that "interest rate and reserve requirement ratio (RRR) tools will be utilized to maintain ample liquidity." Gongsheng reaffirmed China's plans to increase the fiscal deficit and emphasized that China will continue to be a driving force for the global economy.
Xuan Changneng, Deputy Governor of the People’s Bank of China (PBOC), stated on Tuesday that the central bank will "continue implementing measures to maintain the Yuan exchange rate at a reasonable and balanced level." Changneng emphasized plans to enhance counter-cyclical policy adjustments and prevent excessive fluctuations in the exchange rate to ensure the Yuan's stability.
Additionally, the NZD/USD pair appreciates as the risk-sensitive New Zealand Dollar (NZD) gains ground amid risk-on sentiment following reports about US President-elect Donald Trump's economic team considering a gradual increase in import tariffs boosted investor confidence. According to Bloomberg, Trump's incoming administration is evaluating a phased approach to implementing tariffs, aiming to prevent a sharp rise in inflation while managing trade policy adjustments.
The US Dollar Index (DXY), which measures the US Dollar’s performance against six major currencies, corrects downwards after reaching its highest level at 110.18 since November 2022. At the time of writing, the DXY maintains its position near 109.50. The USD appreciates as the recent US labor market figures for December, which is expected to support the US Federal Reserve’s (Fed) decision to maintain interest rates at current levels in January.
Additionally, the reinforced hawkish sentiment surrounding the Fed’s policy outlook sparked a rise in US Treasury yields, with the 2-year yield reaching 4.42% and the 10-year yield rising to 4.80% as of Monday. The higher yields are helping the Greenback stay near recent highs. The US Producer Price Index (PPI) for December will take center stage later on Tuesday.
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.