The NZD/USD pair holds steady near 0.5755 during the early Asian session on Friday. Traders brace for the delayed release of the US Consumer Price Index (CPI) inflation data for September, which is due later on Friday. Also, the developments surrounding the US-China trade talks will be closely monitored.
High-level trade negotiations between the US and China are set to begin in Malaysia later on Friday, marking the fifth round of talks. China’s Vice-Premier He Lifeng will participate in the meetings, as well as US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer. The purpose of the meeting is to discuss key bilateral economic and trade issues.
US President Donald Trump and Chinese President Xi Jinping will meet next Thursday on the sidelines of the Asia-Pacific Economic Cooperation summit. Trump said on Wednesday he expected to reach agreements with Chinese President Xi Jinping when they meet in South Korea next week. The talks could range from resumed soybean purchases by Beijing to limits on nuclear weapons. Any signs of escalating trade tensions between the world’s two largest economies could weigh on the China-proxy Kiwi, as China is a major trading partner for New Zealand.
The US government shutdown on Friday entered its 24th day, becoming the second-longest federal funding lapse ever, with no end in sight. The GOP-backed stopgap bill failed to pass in the Senate for a 12th time on Wednesday evening. The 54-46 vote fell mostly along party lines. Fears that a prolonged US federal shutdown will hurt the US economy could undermine the Greenback and create a tailwind for the pair.
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.
