NZD/USD maintains position above 0.5950 following China Manufacturing PMI
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Akhtar Faruqui
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01 Nov @ 04:59 (GMT+0)

NZD/USD maintains position above 0.5950 following China Manufacturing PMI

  • NZD/USD remains steady due to an unexpected increase in its largest trading partner China's factory activity.
  • China’s Caixin Manufacturing PMI rose to 50.3 in October, up from September’s 49.3, surpassing the expected 49.7 reading.
  • The US Dollar breaks its four-day losing streak as market caution persists ahead of upcoming US presidential election.

NZD/USD remains stable for the third consecutive session, trading around 0.5980 during the Asian hours on Friday. The New Zealand Dollar (NZD) may have gained some support from an unexpected increase in China's factory activity, as China is New Zealand's largest trading partner.

China's Caixin Manufacturing Purchasing Managers Index (PMI) rose to 50.3 in October, up from 49.3 in September, exceeding market expectations of 49.7. Additionally, the seasonally adjusted Building Permits from Statistics New Zealand showed a 2.6% month-on-month increase in new construction permits for September, following a 5.3% decline in August.

However, the Kiwi Dollar may face challenges due to a heightened likelihood of a more dovish stance from the Reserve Bank of New Zealand (RBNZ), especially after inflation returned to the central bank's target range. The markets have fully priced in a 50 basis point rate cut in November and currently project a decrease in the cash rate from 4.75% to 3.82% by the end of this year.

The US Dollar (USD) breaks its four-day losing streak due to ongoing market caution amid uncertainty leading up to the upcoming US presidential election. However, the Greenback encountered difficulties as the US Personal Consumption Expenditures (PCE) Price Index indicated that core inflation rose by 2.7% year-over-year in September.

However, Initial Jobless Claims fell to a five-month low of 216,000 for the week ending October 25, signaling a resilient labor market and reducing expectations for imminent rate cuts by the Federal Reserve (Fed).

Traders are awaiting the Nonfarm Payrolls (NFP) report set for release on Friday. The US economy is projected to have added 113,000 jobs in October, with the Unemployment Rate expected to remain unchanged at 4.1%.

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.