The NZD/USD pair strives to extend its recovery move above the immediate hurdle of 0.5750 during the Asian trading session on Wednesday. The Kiwi pair is expected to move higher on expectations that trade talks between United States (US) Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng scheduled later this week in Malaysia would go well.
Ahead of the meeting, Chinese Vice President Han Zheng has called for “partnership and friendship” between both nations since they hold broad common interests and promising prospects for cooperation, TRT News reported. Han further added that he hopes the US to cooperate in a spirit of mutual respect, peaceful coexistence, and win-win cooperation to jointly discover the right way that will benefit both nations.
Meanwhile, US President Donald Trump has expressed concerns over whether a meeting with Chinese Xi Jinping will take place in South Korea later this month. “So now we’re going to have a fair deal, and I think we’re going to have a very successful meeting,” Trump said, but later added, “Maybe it won’t happen. Things can happen where, for instance, maybe somebody will say, ‘I don’t want to meet. It’s too nasty.'” But it’s really not nasty,” Yahoo News reported.
Signs of improving trade relations between the US and China would be favourable for the New Zealand Dollar (NZD), given that the New Zealand (NZ) economy relies heavily on its exports to Beijing.
On the domestic front, investors remain confident that the Reserve Bank of New Zealand (RBNZ) will cut interest rates one more time this year due to downside inflation risks. Latest Q3 Consumer Price Index (CPI) data signaled that the core inflation grew at a modest pace.
This week, the major trigger for the US Dollar (USD) will be the delayed CPI data for September, which will be released on Friday.
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.