NZD/USD hovers around 0.5600 after trimming recent gains
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Akhtar Faruqui
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03 Mar @ 04:05 (GMT+0)

NZD/USD hovers around 0.5600 after trimming recent gains

  • NZD/USD rose as recent PCE inflation data eased concerns over unexpected US inflation spikes.
  • The NZD receives support from stronger China's Caixin Manufacturing PMI, which rose to 50.8 in February from 50.1 prior.
  • President Trump’s additional 10% tariff on Chinese imports is set to take effect on Tuesday.

NZD/USD halted its six-day losing streak, trading around 0.5600 during the Asian hours on Monday. The pair gains value as the US Dollar (USD) weakens following the release of January’s Personal Consumption Expenditures (PCE) inflation data on Friday. The report met expectations, easing concerns about unexpected inflation spikes in the US.

The US Dollar Index (DXY), which measures the USD against six major currencies, loses ground after three consecutive sessions of gains, hovering around 107.30 at the time of writing. However, downside pressure on the Greenback may be limited as US Treasury yields rise, with the 2-year and 10-year Treasury yields currently at 4.01% and 4.23%, respectively.

Meanwhile, the New Zealand Dollar (NZD) gains support following recent economic data from China, a key trading partner. Data released Monday showed China's Caixin Manufacturing Purchasing Managers' Index (PMI) rose to 50.8 in February from 50.1 in January, surpassing market expectations of 50.3.

On Saturday, official data revealed that the NBS Manufacturing PMI improved to 50.2 in February from 49.1, beating the forecast of 49.9. The NBS Non-Manufacturing PMI also climbed to 50.4 from 50.2, exceeding the expected 50.3.

However, the NZD's upside may be capped by rising global trade tensions. Over the weekend, US President Donald Trump announced an additional 10% tariff on Chinese imports starting Tuesday, adding to last month’s 10% tariff. On Thursday, Trump stated on Truth Social that 25% tariffs on Canadian and Mexican goods will take effect on March 4.

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.