NZD/USD rises over half a percent as Kiwi gains support from trade data

• NZD/USD rallies as Kiwi gains support from promising trade data, PBoC decision to keep rates unchanged
• US Dollar continues sell-off to new lows as US central bankers hint at interest rate cuts in September. 
• New Zealand trade deficit narrows in July compared to 2023 as exports rise. 

NZD/USD is trading over half a percent higher on Tuesday, exchanging hands in the 0.6140s as the US Dollar (USD) continues sinking. The New Zealand Dollar maintains its strength on the back of news that demand for New Zealand exports narrowed the trade deficit in July compared to a year ago. 

The New Zealand trade deficit came out at NZ$0.963 billion in July 2024, narrowing from NZ$1.174 billion in the corresponding month of the previous year. The result, however, fell below forecasts of a NZ$331 million surplus. Given the cyclical nature of trade data and concerns sparked by the economic slow down in China which is a major export partner, the data was interpreted as overall positive. 

The US Dollar, meanwhile, fell to an eight-month low of 101.80 according to the US Dollar Index (DXY) which measures the USD against a trade-weighted basket of counterparts. The Dollar’s weakness was put down to commentary from US central bankers confirming their willingness to lower interest rates in September. Lower interest rates are negative for a currency as they reduce foreign capital inflows. 

On Monday, Federal Reserve Bank of Minneapolis President Neel Kashkari said that it was appropriate to discuss potentially cutting US interest rates in September due to concerns about the weakening labor market, according to Reuters. 

His comments came after Chicago Fed President Austan Goolsbee said the economy was “flashing warning signs” in a speech on Sunday, and that the rise in credit card delinquencies was especially concerning.

The New Zealand Dollar is the strongest performing major against the USD on Tuesday. Apart from the optimistic trade data, news that the People’s Bank of China (PBoC) decided to keep its one-year loan prime rate unchanged at its meeting early Tuesday, might have further boosted the NZD as it suggests the Chinese economy may be in slightly better shape than had previously been feared.

According to trade data released by Statistics New Zealand on Monday, New Zealand exports rose by 14% year-over-year in July, reaching NZ$ 6.1 billion. These were mainly driven by higher shipments of milk powder, butter, and cheese (+11%); fruit (+28%); preparations of milk, cereals, flour, and starch (+86%); and Crude Oil (+310%). 

New Zealand imports rose by a lower 8.5% driven by higher purchase of petroleum and products (+101%); electrical machinery and equipment (+12%); pharmaceutical products (+32%); and plastic and plastic articles (+13%), according to data from Trading Economics. 

Upside for the Kiwi may face resistance, however, given the Reserve Bank of New Zealand’s (RBNZ) decision to make a surprise cut of 0.25% to its policy rate at its meeting last week. Following the meeting, RBNZ Governor Adrian Orr said he is more convinced that inflation has returned to the 1-3% target area, boosting the likelihood of more rate cuts in the future – a potential headwind for the Kiwi going forward.