NZD/USD attracts some buyers above 0.6100 amid the US Dollar weakness

July 4, 2024 2:25 am

  • NZD/USD gathers strength around 0.6110 in Thursday’s early Asian session, up 0.12% on the day. 
  • US ISM Services PMI came in weaker than expected, dropping to 48.8 in June from 53.8 in May.  
  • The RBNZ is expected to leave its OCR unchanged at 5.5% at its policy meeting next week. 

The NZD/USD pair extends gains near 0.6110 on Thursday during the early Asian trading hours. The pair edges higher as the Greenback came under heavy bearish pressure after the disappointing US ISM Services PMI report. The US markets will be closed on Thursday due to Independence Day.

Data released from the Institute for Supply Management (ISM) on Wednesday showed that the US Services PMI dropped to 48.8 in June from 53.8 in May. This figure came in worse than the market estimation of 52.5 by a wide margin. Meanwhile, the US weekly Initial Jobless Claims for the week ending June 29 rose by 238,000, compared to the previous weekly gain of 233,000, above the consensus of 235,000. The Greenback has attracted some sellers due to the weaker US economic data, which acts as a tailwind for NZD/USD. 

The Minutes of the Federal Reserve’s (Fed) June 11-12 monetary policy meeting released on Wednesday revealed that the Fed officials were in wait-and-see mode at their June meeting. “Some participants emphasized the Committee’s data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path,” the minutes showed. 

Early Thursday, Chicago Fed President Austan Goolsbee said that getting inflation back to 2% will take time and there is still much data to be had on the economy.

On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) is anticipated to hold its borrowing costs at 5.5% for the seventh consecutive meeting in July. Nonetheless, investors have priced in nearly 45% odds of an October cut from the RBNZ. Traders will take more cues from the Monetary Policy Statement. Any hints about an earlier easing cycle from the New Zealand central bank might drag the New Zealand Dollar (NZD) lower and cap the upside for the pair. 

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.

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