- The New Zealand Dollar continues rising on Wednesday as positive news from China helps boost commodity prices.
- The Kiwi had already rebounded after lower-than-expected US CPI data led to hopes of an end to the global rate-hiking cycle.
- NZD/USD breaks to fresh highs and targets the October highs at 0.6055.
The New Zealand Dollar (NZD) continues to build on the previous day’s gains midweek after a raft of positive growth stories from China, its largest trading partner, boosted the prospects for exports.
From a technical perspective, the pair’s short-term trend has turned bullish again and is closing in on the key October 2023 highs at 0.6055.
Daily digest market movers: New Zealand Dollar: China in the spotlight
- The New Zealand Dollar rallies after data from China lifts the outlook for trade and reverses the recent spate of lackluster readings.
- A support package from the Chinese government, amounting to an injection of 1 trillion Yuan in low-cost financing for the beleaguered property sector, also helps allay fears of a credit crunch, according to a report originally from Bloomberg News.
- Data out early Wednesday morning showed Chinese Retail Sales rose 7.6% in October YoY, squarely beating estimates of 7.0% and 5.5% previously, according to the National Bureau of Statistics of China.
- Industrial Production also beat expectations, coming out at 4.6% YoY in October versus consensus estimates of 4.5% and 4.5% previously.
- Fixed Asset Investment came in at a lower 2.9% than the 3.1% forecast (YoY YTD in October) and the 3.1% previous.
- The strong Chinese data, coupled with lower inflation data from the US, UK and several European countries, lessened global growth fears and led to a surge in risk appetite, with stock indices across the globe seeing marked rallies.
- New Zealand is a major exporter of dairy products to China, so the positive newsflow helped support the prospects for the economy and demand for the New Zealand Dollar.
- The US Dollar has fallen after inflation data suggested a greater chance of no further increases to interest rates. This makes the US a less attractive place for global investors to park their capital, reducing demand for the USD.
New Zealand Dollar technical analysis: NZD/USD continues rallying
NZD/USD – the number of US Dollars one New Zealand Dollar can buy – extends its rally above the important November 3 high at 0.6001 and sets its sights on the 0.6055 October high.
New Zealand Dollar vs US Dollar: Daily Chart
The break above 0.6001 confirms the short-term bullish bias again, with the next target at 0.6055.
The pair has now broken cleanly above the 100-day Simple Moving Average (SMA) and a further push above the 0.6055 October high would change the outlook in the medium term, indicating the possibility of the birth of a new uptrend. Such a move would then target the 200-day SMA at around 0.6100.
As things stand, the medium and long-term trends are both still bearish, however, suggesting the potential for more downside remains strong.
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.