New Zealand dollar weakens on stronger US dollar in eye of Chinese data

VaselineAugust 8, 2024

0 4 minutes read

New Zealand dollar weakens on stronger US dollar in eye of Chinese data

The New Zealand dollar is lower in the first Asian session on Friday.
A drop in New Zealand’s two-year inflation expectations and a firmer US dollar are weighing on the pair.
Traders await China’s CPI and PPI data due on Friday.

The New Zealand dollar (NZD) is trading slightly bearish on Friday amid renewed demand for the US dollar (USD). The greenback advances to a weekly high as recent initial US jobless claims ease some fears about the US labor market. A decline in New Zealand’s two-year inflation expectations could limit the upside for the NZD. Additionally, heightened geopolitical risks in the Middle East could affect riskier assets like the Kiwi and create a headwind for NZD/USD.

On the other hand, a stronger-than-expected employment report from New Zealand earlier this week threw cold water on expectations of a near-term Reserve Bank of New Zealand (RBNZ) interest rate cut. The bullish reading could be enough to fuel another bullish run for the Kiwis in the near term. Traders will be watching economic data from China on Friday, including the Consumer Price Index (CPI) and Producer Price Index (PPI) for July. Any sign of a recovery in the Chinese economy could lift the Kiwi, with China being New Zealand’s biggest trading partner.

Daily Digest Market Movers: New Zealand dollar loses ground amid rising US dollar

According to the RBNZ’s latest survey of monetary conditions, two-year inflation expectations fell from 2.33% seen in Q2 2024 to 2.03% in Q3 this year. Average one-year inflation expectations fell to 2.40% in Q3 from 2.73% seen in Q2.
US initial jobless claims for the week ended August 3 rose by 233,000 from the previous week’s 250,000 (revised from 249,000), the US Department of Labor (DoL) reported on Thursday. This figure was below the consensus of 240K.
Continuing claims rose 6,000 to 1,875 million in the week ended July 27, beating the estimate of 1,870 million.
Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee said Thursday that the Fed needs to see more than just payrolls and more than one month.
Richmond Fed President Thomas Barkin noted that the cooling in the U.S. labor market came from slower hiring rather than an increase in layoffs, giving the Fed time to figure out its next move.

Technical Analysis: The NZD remains bearish in the long term

The New Zealand dollar is trading stronger today. However, the NZD/USD bearishness prevails on the daily chart, with the price remaining below the key 100-day exponential moving average (EMA). However, the RSI is hovering around the median line of 50, suggesting that a potential consolidation cannot be ruled out.

The 100-period EMA near 0.6050 could act as a potential upside barrier for NZD/USD. If the price manages to break above this level, it would indicate the possibility of further upside. The next obstacle is seen at 0.6112, the upper limit of the Bollinger band.

On the downside, initial support appears at 0.5912, a low of August 6. Further south, the additional downside filter to watch is the 0.5850-0.5840 region, representing an April 19 low and lower bound of the Bollinger Band.

New Zealand Dollar FAQ

The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is largely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some unique features that can make the NZD move as well. The performance of the Chinese economy tends to move Kiwis as China is New Zealand’s largest trading partner. Bad news for the Chinese economy likely means fewer New Zealand exports to the country, hitting the economy and therefore its currency. Another factor that moves the NZD is the price of dairy products, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.

The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with a focus on keeping it close to the 2% midpoint. For this purpose, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will raise interest rates to cool the economy, but this move will also raise bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate differential, or how New Zealand rates are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.

Macroeconomic data released in New Zealand is key to assessing the state of the economy and can impact the valuation of the New Zealand dollar (NZD). A strong economy based on high growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is coupled with increased inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.

The New Zealand Dollar (NZD) tends to strengthen during periods of risk or when investors perceive broader market risks to be low and are bullish on growth. This tends to lead to a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during periods of market turbulence or economic uncertainty as investors tend to sell riskier assets and flee to more stable havens.

VaselineAugust 8, 2024

0 4 minutes read

Daily Digest Market Movers: New Zealand dollar loses ground amid rising US dollar

Technical Analysis: The NZD remains bearish in the long term

New Zealand Dollar FAQ

Vaseline

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