NZD/USD remains below 0.5900 following New Zealand’s Trade Balance data
- NZD/USD loses ground as New Zealand recorded a trade deficit of NZD 2.99 billion in August.
- New Zealand’s Exports fell to NZD 5.94 billion, while imports declined to NZD 7.12 billion in August.
- The US Dollar gains ground after the release of Weekly Initial Jobless Claims.
NZD/USD loses ground for the third consecutive day, trading around 0.5880 during the Asian hours on Friday. The New Zealand Dollar (NZD) remains subdued against the US Dollar (USD) following the domestic trade balance data.
New Zealand’s trade deficit shrank to NZD 2.99 billion year-over-year in August, from a NZD 4.12 billion deficit the prior month. Exports declined to NZD 5.94 billion in August, from NZD 6.56 billion in July. Meanwhile, imports edged lower to NZD 7.12 billion from NZD 7.27 billion.
Additionally, the weaker-than-expected New Zealand Gross Domestic Product (GDP), released on Thursday, exerts some selling pressure on the Kiwi pair. GDP declined by 0.9% QoQ in the second quarter (Q2), reversing a 0.9% expansion in Q1. On an annual basis, the New Zealand economy contracted by 0.6% in Q2, compared with a fall of 0.6% in Q1.
Additionally, the NZD/USD pair faces challenges as the US Dollar gains support after the release of the United States (US) Weekly Initial Jobless Claims on Thursday. The US Department of Labour (DOL) released on Thursday, the number of US citizens submitting new applications for unemployment insurance declined to 231K for the week ending September 13. The latest print came in short of initial estimates of 240K and was lower than the previous week’s 264K (revised from 263K). Meanwhile, Continuing Jobless Claims shrank by 7K to 1.920M for the week ending September 6.
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.