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

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

NZD/USD is trading more than half a percent higher on Tuesday, changing hands in the 0.6140s, while the US dollar (USD) continues to decline. The New Zealand dollar is holding on to strength on news that demand for New Zealand exports narrowed the trade deficit in July compared to a year ago.

New Zealand’s trade deficit was NZ$0.963 billion in July 2024, down from NZ$1.174 billion in the corresponding month a year earlier. The result, however, fell short of forecasts for a $331 million surplus. Given the cyclical nature of trade data and concerns over an economic slowdown in China, a major export partner, the data was interpreted as broadly 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 peers. The dollar’s weakness was caused by comments from US central bankers confirming their willingness to cut interest rates in September. Lower interest rates are negative for a currency because they reduce foreign capital inflows.

On Monday, Minneapolis Federal Reserve Bank President Neel Kashkari said it was timely to discuss a possible US interest rate cut in September due to concerns about a weakening labor market, according to Reuters.

His comments came after Chicago Fed President Austan Goolsbee said the economy was “showing warning signs” in a speech on Sunday and that rising credit card delinquencies were particularly concerning.

The New Zealand dollar is the strongest major performer against the USD on Tuesday. Apart from the upbeat trade data, news that the People’s Bank of China (PBoC) decided to keep the key one-year lending rate unchanged at its meeting on Tuesday morning may have boosted the NZD further as it suggests the Chinese economy would could be slightly in decline. better form than previously feared.

New Zealand exports rose 14% year-on-year in July to $6.1 billion, according to trade data released by Statistics New Zealand on Monday. These were mainly driven by higher shipments of milk powder, butter and cheese (+11%); fruits (+28%); milk, cereal, flour and starch preparations (+86%); and crude oil (+310%).

New Zealand imports were down 8.5% on higher purchases of oil and products (+101%); machinery and electrical equipment (+12%); pharmaceutical products (+32%); and plastic and plastic goods (+13%), according to data from Trading Economics.

However, the upside for Kiwis could face resistance given the Reserve Bank of New Zealand’s (RBNZ) decision to surprise cut its policy rate by 0.25% at last week’s meeting. Following the meeting, RBNZ Governor Adrian Orr said he was more confident that inflation had returned to the 1-3% target area, raising the likelihood of more rate cuts ahead – a potential headwind for Kiwis going forward.