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6 Feb 2025
NZD/USD gains ground to near 0.5700 on weaker US PMI data
- NZD/USD posts modest gains around 0.5690 in Thursday’s early Asian session.
- US ISM Services PMI came in weaker-than-expected in January, declining to 52.8 vs. 54.3 expected.
- The RBNZ dovish bets and concerns about the US-China renewed trade war could undermine the China-proxy Kiwi.
The NZD/USD pair trades with mild gains around 0.5690 during the early Asian session on Thursday. The downbeat US economic data drag the Greenback lower against the New Zealand Dollar (NZD). Investors will closely watch the developments surrounding the renewed trade war between the United States and China, the world’s two largest economies.
The weaker US Services Purchasing Manager Index (PMI) could weigh on the Greenback and create a tailwind for the pair. The US ISM Services PMI eased to 52.8 in January from 54.0 (revised from 54.1) in December. This reading came in below the market consensus of 54.3.
On the other hand, the New Zealand employment data for the fourth quarter (Q4) will keep the RBNZ on track to cut the Official Cash Rate (OCR) by 50 basis points (bps) to 3.75% this month. Data released by Statistics New Zealand on Wednesday revealed that the country’s Unemployment Rate rose to 5.1% in Q4 versus 4.8% prior. This figure registered a four-year high and was above the 25-year average of 4.8%. The rising bets that the Reserve Bank of New Zealand (RBNZ) will cut the interest rates might further weigh on the New Zealand Dollar (NZD).
"In line with RBNZ guidance, markets continue to imply another 50bps rate cut to 3.75% at the February 19 meeting and the policy rate to through around 3.00% over the next 12 months. Bottom line: NZ-US 2-year bond yield spreads can further weigh on NZD/USD,” noted Société Générale's FX analysts.
On Tuesday, China's finance ministry announced a package of tariffs on a range of US products, including crude oil, farm equipment, and some autos in an immediate response to a 10% tariff on Chinese imports announced by US President Donald Trump. Additionally, China put several companies, including Google, on notice for possible sanctions, in a measured response to Trump's tariffs. Any signs of uncertainty or escalating trade war tension could drag the China-proxy Kiwi lower as China is a major trading partner to New Zealand.
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.