NZD/USD jumps above 0.5750 amid prospect of Fed rate cuts
- NZD/USD drifts higher to near 0.5760 in Monday’s early European session, up 0.31% on the day.
- China’s plan to revitalize the agriculture sector and boost consumption lifts the China-proxy Aussie.
- The downbeat US PMI data undermine the US Dollar and create a tailwind for the pair.
The NZD/USD pair gains momentum to around 0.5760 during the early European session on Monday. The New Zealand Dollar (NZD) attracts some buyers after the Chinese government announced its annual policy statement for 2025 on Sunday. Later on Monday, the Chicago Fed National Activity Index for January will be released.
China will deepen rural reforms to revitalize the agriculture sector and strengthen food security in the face of US tariffs, an economic slowdown, and climate change, according to the State Council’s annual rural policy blueprint. Additionally, Premier Li Qiang said last week that China will direct more efforts to boosting consumption and lifting people's livelihoods. The positive development surrounding China’s stimulus plans supports the China-proxy Kiwi as China is a major trading partner to New Zealand.
The disappointing US economic data, including the S&P Global Purchasing Managers' Index (PMI) released last week, weighs on the Greenback and acts as a tailwind for NZD/USD. The US Composite PMI fell to 50.4 in February from 52.7 in the previous month.
Meanwhile, the Manufacturing PMI rose to 51.6 versus 51.2 prior, surpassing the forecast of 51.5. The Services PMI dropped to 49.7 in February, compared to 52.9 in January, below the market consensus of 53.0. The reports kept the prospect of interest rate cuts by the Federal Reserve (Fed) intact this year, even though the Fed will remain on hold for the next several months.
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.