During the Asian trading hours on Wednesday, the NZD/USD pair is in positive territory around 0.5825. The New Zealand dollar (NZD) remains powerful against the US dollar (USD) following Chinese economic data. Attention will shift to the June US Producer Price Index (PPI) report later on Wednesday.
Data released by the National Bureau of Statistics (NBS) on Wednesday showed that China’s economy grew 4.3% y/y in the second quarter (Q2), compared to 5.0% growth in the previous quarter, below the market consensus of 4.5%. The figure was the weakest since 2022 and fell below China’s full-year economic growth target range of 4.5-5.0%.
On a quarterly basis, China’s gross domestic product (GDP) rate rose 0.9% in the second quarter, after growing 1.3% in the first quarter, in line with market consensus.
Moreover, retail sales in China rose 1.0% y/y in June, compared to -0.6% earlier, better than estimates of -0.1%. Industrial production was 5.3% compared to 4.5% in May, better than the expected 4.6%. Mixed economic data from China has little or no impact on China’s replacement kiwi.
On the USD front, investors are reducing their bets on a July Fed rate hike after lower-than-expected US inflation data, which weakens the dollar and acts as a tailwind for the pair. According to CME’s FedWatch tool, the likelihood of a rate hike in July fell to 16% from 42% on Monday, although the likelihood of a rate hike this year was higher at 80%, down from 89% on Monday.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the condition of the New Zealand economy and the policy of the country’s central bank. Still, there are some unique features that can also cause the NZD to move. The performance of the Chinese economy tends to move Kiwis because China is New Zealand’s largest trading partner. Bad news for the Chinese economy is likely to mean fewer New Zealand exports to the country, which hits the economy and therefore the currency. Another factor influencing NZD is dairy prices, as the dairy industry is New Zealand’s main export. High dairy product prices escalate export earnings, positively impacting the economy and therefore NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of 1% to 3% over the medium term, with particular emphasis on keeping it close to the average level of 2%. For this purpose, the bank sets the appropriate level of interest rates. When inflation gets too high, the RBNZ will raise interest rates to frigid the economy, but this move will also push up bond yields, making it more attractive for investors to invest in the country and therefore strengthening New Zealand’s currency. On the contrary, lower interest rates tend to weaken NZD. The so-called interest rate differential, which is how New Zealand rates are or are expected to be compared to those set by the US Federal Reserve, could also play a key role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assessing the state of the economy and may impact the valuation of the New Zealand dollar (NZD). NZD is well served by a powerful economy, underpinned by high economic growth, low unemployment and high confidence. High economic growth attracts foreign investment and may prompt the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by increased inflation. Conversely, if economic data is tender, NZD will likely lose value.
The New Zealand dollar (NZD) tends to strengthen during periods of increased risk or when investors perceive that broader market risk is low and are positive about growth. This tends to lead to a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. On the other hand, NZD tends to weaken during periods of market turmoil or economic uncertainty as investors tend to sell higher risk assets and flee to more stable protected havens.
