NZD/USD holds steady above 0.6050 due to news of progressing US-China trade talks
- NZD/USD appreciated as the US Dollar struggles due to renewed concerns over the Fed's independence.
- China will approve export applications for controlled items in return for the US lifting a series of restrictive measures.
- President Trump may choose his preferred candidate to lead the Federal Reserve next year.
NZD/USD continues its winning streak for the fifth consecutive session, trading around 0.6070 during the European hours on Friday. The pair gained ground as the US Dollar (USD) struggled due to renewed concerns over the US Federal Reserve’s (Fed) independence.
The Chinese Commerce Ministry stated on Friday, “London talks served to further confirm details on framework.” China will approve export applications for controlled items, while the United States will, in turn, lift a series of restrictive measures imposed on China. This is important to note that any Chinese economic update could influence the New Zealand Dollar (NZD) as both countries are close trading partners.
The ANZ Roy Morgan Consumer Confidence climbed to 98.8 in June from the previous reading of 92.9, marking the highest reading since December. Earlier this month, stronger-than-expected Q1 GDP and an improved May trade surplus in New Zealand further supported the Reserve Bank of New Zealand’s (RBNZ) decision to delay additional interest rate cuts.
US President Donald Trump could weaken Fed Chair Jerome Powell’s authority by announcing his preferred candidate to lead the central bank next year. Trump said that he has a list of potential Powell successors down to “three or four people,” without naming the finalists.
The upside of the NZD/USD could be restrained as the Greenback may receive support from market caution, driven by the latest remarks from the Iranian Foreign Minister, Abbas. Araghchi stated that Tehran has no intention of resuming nuclear negotiations with the United States. “No agreement or arrangement has been made to resume negotiations. Neither any promise has been given, nor any discussion has taken place on this matter,” He added as per CNN.
The downbeat US Gross Domestic Product (GDP) data further supports dovish expectations surrounding the Federal Reserve’s (Fed) policy outlook. The report showed a 0.5% contraction in the first quarter, which came in worse than the market expectation of -0.2%. However, the impact of the weaker US GDP was offset by Jobless Claims falling to a five-week low at 236K and Durable Goods Orders posting a 16.4% increase, the biggest gain in 11 years. Traders will likely observe the US May Personal Consumption Expenditures (PCE) Price Index data later in the North American session.
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.