The New Zealand Dollar (NZD) has been losing ground against the US Dollar (USD) in recent trading sessions as traders are scaling back their expectations of a 50 basis points rate cut by the US Federal Reserve in September. The focus is now on the upcoming US ISM Manufacturing PMI data, as well as the August Nonfarm Payrolls (NFP) report, to gain more insights into the potential timing and scale of Fed rate cuts. US Treasury yields are on the rise, providing support for the USD, but the gains may be limited by the growing expectations of a 25 basis point rate cut by the Fed in September.
In contrast, New Zealand’s Terms of Trade Index saw a positive swing with a 2.1% quarter-on-quarter increase in Q2, surpassing market expectations. Export prices also saw a significant increase, which is good news for the New Zealand economy. The NZX 50 Index is consolidating around 12,500, with traders keeping an eye on global drivers, such as the July manufacturing PMI data from China, New Zealand’s key trading partner.
The performance of the Chinese economy has a significant impact on the movement of the New Zealand Dollar (NZD) due to China being New Zealand’s largest trading partner. Bad news for the Chinese economy can lead to less exports for New Zealand, affecting its economy and currency. Additionally, dairy prices also play a crucial role in moving the NZD, as the dairy industry is a major export for New Zealand. The Reserve Bank of New Zealand (RBNZ) aims to maintain inflation between 1% and 3% over the medium term, with interest rates as a tool to achieve this goal.
Macroeconomic data releases in New Zealand are vital in assessing the state of the economy and impacting the valuation of the NZD. A strong economy with high economic growth, low unemployment, and high confidence is positive for the NZD. The currency tends to strengthen during risk-on periods when market risks are low and investors are optimistic about growth, boosting commodities and commodity currencies like the Kiwi. Conversely, the NZD tends to weaken during market turbulence or economic uncertainty, as investors seek safe-haven assets over higher-risk assets. Overall, the NZD remains a currency influenced by a variety of factors, with traders closely monitoring economic data and central bank policies for insights into its movement.
