NZD/USD posts modest gains above 0.5750 ahead of US PMI release
- NZD/USD trades with mild gains near 0.5765 in Friday’s early Asian session.
- US Initial Jobless Claims came in weaker than expected last week.
- Trump tariff threats could drag the Kiwi lower.
The NZD/USD pair extends the rally to around 0.5765 during the early Asian session on Friday, pressured by the softer US dollar (USD). Traders will keep an eye on the preliminary reading of the US S&P Global Purchasing Managers Index (PMI) for February, which is due later on Friday.
The weaker-than-expected US Initial Jobless Claims weigh on the Greenback. Data released by the US Department of Labor (DoL) on Thursday showed that the US Initial Jobless Claims for the week ending February 15 rose to 219K, compared to the previous week's revised tally of 214K (from 213K). This figure came in above the market consensus of 215K.
The Reserve Bank of New Zealand (RBNZ) cut interest rates by 50 basis points (bps) to 3.75% at the latest policy meeting on Wednesday, as widely expected. RBNZ Governor Adrian Orr signaled that further rate cuts are on the way in the coming months amid moderating inflation as policymakers sought to boost a struggling economy. ING analysts said, “NZD is benefiting from seeing the end of the easing cycle sooner than previously thought.”
However, the concern about US tariffs US President Trump’s tariff threats might exert some selling pressure on the Kiwi. On Wednesday, Trump said that he would announce fresh tariffs within the next month, adding lumber and forest products to previously announced plans to impose duties on imported cars, semiconductors and pharmaceuticals.
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.