NZD/USD approaches four-month highs at 0.5850 as the US Dollar dives
- NZD/USD reaches levels right below four-month highs at 0.5850.
- The US Dollar dives as Trump's obsession with Greenland triggers a "Sell America" trade.
- New Zealand's strong services sector activity data underpinned the Kiwi's rally on Monday.
The New Zealand Dollar appreciates for the third consecutive day against a weaker US Dollar on Tuesday. The pair has reached levels a few pips below the last four months’ peak, at the 0.5850 area, with the US Dollar on its back foot amid geopolitical tensions and US President Trump’s erratic trade policies
Investors are getting rid of all US assets in a “Sell America” trade similar to the one that followed the “Liberation Day” in April. Trump has spooked investors further, refusing to rule out military action to take Greenland, and has confirmed his intent to impose additional levies on all countries opposing it.
US Treasury Secretary Scot Bessent called for calm over the strained US-EU relationship. The Danish Economy Minister affirmed that Denmark wants a negotiated solution, but that if tensions continue escalating, there will need to be an answer at some point.
In New Zeraland the BusinessNZ Performance of Services index improved to 51.1 in December from 49.6 in November, returning to expansion levels after almost one year, and closing the longest contraction period since the survey began.
Beyond that, data from China released on Monday revealed that the world’s second-largest economy grew at a 4.5% yearly pace in Q4, below the 4.8% GDP growth seen in the previous quarter but above the 4.4% market consensus. Industrial Production beat expectations with a 5.2% increase in December, while Retail Sales and housing prices disappointed, highlighting the weak momentum of the property sector and the domestic demand.
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.