Key Moments
- NZD/USD traded around 0.5810 during Asian hours on Monday after snapping a four-day losing streak.
- Stronger-than-expected Chinese Retail Sales and Industrial Production data provided support for the New Zealand Dollar.
- Markets have largely priced in a 25-basis-point RBNZ hike in September and see over a 70% chance of another increase in December.
NZD/USD Recovers Above 0.5800
NZD/USD advanced during Asian trading on Monday, hovering near 0.5810 after four consecutive sessions of declines. The pair remained underpinned as the New Zealand Dollar (NZD) drew support from fresh economic data out of China, a key trading partner for New Zealand.
Shifts in the Chinese economic outlook often have a direct impact on the NZD given the close trade relationship between the two economies.
Chinese Data Beats Expectations
Figures released Monday by China’s National Bureau of Statistics (NBS) showed that Retail Sales rose 2.8% year-over-year in February, exceeding market expectations of 2.5% and improving from December’s 0.9% pace. Industrial Production also surprised to the upside, increasing 6.3% year-over-year, ahead of the 5.1% consensus forecast and stronger than the prior 5.2% reading.
| Chinese Indicator | Period | Actual YoY | Forecast YoY | Previous YoY |
|---|---|---|---|---|
| Retail Sales | February | 2.8% | 2.5% | 0.9% |
| Industrial Production | February | 6.3% | 5.1% | 5.2% |
RBNZ Rate Hike Expectations Build
Market participants are reassessing the outlook for the Reserve Bank of New Zealand (RBNZ), with attention turning to the possibility of tighter monetary policy later this year. Rising oil prices linked to the ongoing Middle East conflict are feeding through to the New Zealand economy, pushing up petrol prices and airfares.
Some analysts argue that these dynamics could force the central bank to act sooner than previously thought. Current market pricing reflects that view, with investors largely discounting a 25-basis-point rate increase in September and assigning more than a 70% probability to another hike in December.
However, the RBNZ’s own projections do not fully incorporate a year-end rate increase, reflecting concerns about New Zealand’s weak economic backdrop.
US Dollar Softens as Risk Sentiment Improves
The US Dollar (USD) eased against major counterparts as risk aversion moderated following reports that the United States may be preparing to announce a coalition to escort ships through the Strait of Hormuz. The prospect of such a move supported broader risk appetite and weighed on the greenback.
Additionally, US Energy Secretary Chris Wright said that he expects the US-Israel conflict with Iran to end within “the next few weeks,” which could enable oil supplies to recover and ease pressure on energy prices.
New Zealand Dollar FAQs
What key factors drive the New Zealand Dollar?
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.
How do decisions of the RBNZ impact the New Zealand Dollar?
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.
How does economic data influence the value of the New Zealand Dollar?
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.
How does broader risk sentiment impact the New Zealand Dollar?
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.
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