NZD/USD strengthens above 0.5950 ahead of US PPI release
- NZD/USD attracts some buyers to around 0.5985 in Thursday’s Asian session.
- Softer US economic data boost expectations of a Fed rate cut next month.
- The US and China extended the trade truce another 90 days, supporting the China-proxy Kiwi.
The NZD/USD pair gains ground to near 0.5985 during the Asian trading hours on Thursday. The US Dollar (USD) weakens against the New Zealand Dollar (NZD) as traders ramp up bets for a Federal Reserve (Fed) rate cut in September. The US Producer Price Index (PPI) and the weekly Initial Jobless reports will be the highlights later on Thursday.
Investors grew more confident about interest rate cuts ahead due to a cooling labor market and softer US inflation data, weighing on the USD. The US Consumer Price Index (CPI) rose 2.7% YoY in July, below the expectations of 2.8%, the US Bureau of Labor Statistics (BLS) showed Tuesday. The annual core CPI climbed by 3.1% in July versus the 2.9% rise recorded in June and above the market consensus of 3.0%.
Easing trade tensions between the US and China continues to underpin the China-proxy Kiwi, as China is a major trading partner of New Zealand. President Donald Trump extended a trade truce with China for another 90 days on Monday, just hours before the last agreement between the world’s two largest economies was due to expire. The Commerce Ministry stated Tuesday that the officials would extend relief to American companies that were placed on an export control list and an unreliable entities list.
Traders will take more cues from the US PPI report for July, as it might offer some hints about the US interest rate path later this year. The headline PPI is expected to show an increase of 2.5% YoY in July, while the core PPI is projected to show a rise of 2.9% YoY during the same report period. Any signs of hotter-than-expected inflation could boost the Greenback and cap the upside for the pair in the near term.
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.