NZD/USD holds gains above 0.5750 following mixed data from China

NZD/USD remains stronger following the release of domestic and Chinese data.
China’s Industrial Production rose by 5.4% YoY in November, exceeding market expectations of a 5.3% increase.
The US Dollar remains subdued as Treasury yields hold thin losses.

NZD/USD breaks its four-day losing streak, trading around 0.5780 during the European hours on Monday. The New Zealand (NZD) remains stronger following the recent data from its largest trading partner, China. However, the upside of the Kiwi Dollar could be restrained due to the increased likelihood of a further aggressive easing approach from the Reserve Bank of New Zealand (RBNZ) early in 2025.

Recent reports indicate that China, a key trade partner for New Zealand, saw industrial output perform better than expected. However, this optimism was tempered by significantly lower-than-forecast Retail Sales and a continued decline in house prices.

China’s annual Industrial Production rose by 5.4% in November, surpassing the market expectation of a 5.3% increase. In contrast, Retail Sales grew by 3.0% year-on-year in November, falling short of the anticipated 4.6% and the previous reading of 4.8%.

Domestically, the Business NZ Performance of Services Index climbed to 49.5 in November, up from 46.2 in October, marking its highest level since February. Additionally, the Food Price Index increased by 1.3% year-on-year in November, slightly above the 1.2% rise recorded in October.

The US Dollar (USD) remains subdued amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday. The Federal Reserve is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed’s December meeting.

The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades near 106.80 with 2-year and 10-year yields on US Treasury bonds standing at 4.23% and 4.38%, respectively, at the time of writing.

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.

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