The NZD/USD pair gains momentum to around 0.5850 during the Asian trading hours on Thursday. The New Zealand Dollar (NZD) edges higher against the Greenback amid risk-on sentiment as US President Donald Trump touts a Greenland deal. Traders brace for the final reading of US Gross Domestic Product (GDP) for the third quarter (Q3), weekly Initial Jobless Claims and Personal Consumption Expenditures (PCE) Price Index data, which will be released later on Thursday.
Trump said on Wednesday that he would refrain from imposing tariffs on goods from European nations opposing his effort to take possession of Greenland. He added that a “framework of a future deal” was reached regarding the island. Trump did not give details of the framework, and it was unclear what the agreement entails. Hopes for a solution in Trump’s ambitions for Greenland could support the riskier currency, such as the Kiwi against the US Dollar (USD) in the near term.
The New Zealand Consumer Price Index (CPI) inflation report will be in the spotlight later on Friday. The headline CPI is estimated to show an increase of 0.5% QoQ in the fourth quarter (Q4), while the annual CPI is projected to show a rise of 3.0% during the same period. Any signs of softer inflation in New Zealand could weigh on the New Zealand Dollar as it could reduce the probability of the Reserve Bank of New Zealand (RBNZ) raising interest rates.
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.
