- NZD/USD extends losses ahead of key economic data releases scheduled for later in the week.
- Falling US Treasury yields put downward pressure on the dollar.
- The New Zealand dollar weakened as China’s Services Purchasing Managers’ Index (PMI) fell to 51.6 in August from 52.1 in July.
The NZD/USD pair continues its losing streak for the fourth consecutive day, trading around 0.6180 during Asian hours on Wednesday. The NZD/USD pair’s decline could be attributed to the cautious stance adopted by market participants ahead of the release of key economic data this week, including the ISM Services PMI and Non-Farm Payrolls (NFP). These data could shed light on the potential size of an expected rate cut by the Fed this month.
The US Dollar is weakening on the back of lower Treasury yields. The yields on the 2-year and 10-year US Treasury bonds stand at 3.86% and 3.83%, respectively, at the time of writing. However, the Dollar received support following the release of the ISM manufacturing PMI. The index rose to 47.2 in August from 46.8 in July, falling short of market expectations of 47.5. This marks the 21st contraction in US manufacturing activity in the past 22 months.
The New Zealand Dollar (NZD) is facing downward pressure as China’s Services Purchasing Managers’ Index (PMI) fell to 51.6 in August from 52.1 in July. This drop is significant given the strong trade relationship between China and New Zealand.
Additionally, Bank of America (BoA) has revised its economic growth forecast for China, lowering its projection for 2024 to 4.8% from 5.0% previously. For 2025, the forecast is adjusted to 4.5% growth, while the outlook for 2026 remains unchanged at 4.5%.
In August, New Zealand’s ANZ Commodity Price Index rose 2.1%, rebounding from a 1.7% drop in July. In an interview with Bloomberg on Wednesday, Martin Foo, a director at S&P Global Ratings, warned that “New Zealand’s current account deficit needs to narrow further.” Foo added that while he is generally comfortable with the outlook for New Zealand’s sovereign rating, he is “closely watching the country’s large current account deficit and weak economic growth.”
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the health of the New Zealand economy and the policies of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. Developments in the Chinese economy tend to move the Kiwi because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely translate into fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor that moves the NZD is dairy prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also push up bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate spread, or how rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and can encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive that overall market risks are low and are optimistic about growth. This often translates into a more favourable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
