The NZD/USD currency cross attracted heavy upward momentum towards the 0.5785 level seen during the Asian trading session on Monday. The development illustrates the increasingly favorable sentiment toward the New Zealand Dollar (NZD). Recent macroeconomic data, especially China’s economic performance, are undergirding this positive sentiment. As New Zealand’s largest trading partner, fluctuations in the Chinese economy directly impact the NZD’s valuation, accentuating the interconnectedness of global markets.
Adding to the optimistic sentiment supporting the NZD has been recent macroeconomic data coming out of New Zealand. The assessment of the country’s economic health plays a crucial role in determining the currency’s strength. Central to the NZD/USD pair are expectations about near-term U.S. Federal Reserve monetary policy, especially interest rate moves. Together, this complementary relationship creates a fascinating interaction between the two currencies.
Macroeconomic Data Influencing the NZD
Looking back, NZ’s economy showed encouraging signs with some of the most important macroeconomic indicators coming out last week. Export were through the roof with a very robust 5.7% growth rate in November. This is an unprecedented jump from the previous rate of only 1.1%. The record increase in merchandise exports of $7.5 billion reflects particularly keen demand for New Zealand goods in overseas markets. This demand is the life blood of a healthy economy.
It was imports that increased as well – but only by 1.9%, a significant increase from the 1.0% originally reported. The balance of trade is still a vital indicator for understanding the economic environment of New Zealand. The increase in exports compared to imports indicates a strong trade environment that has been boosting the NZD’s value.
Recent data releases have ignited an unexpected based euphoria about the New Zealand economy. This encouraging development is attracting a growing number of buyers to the NZD/USD pair. As investors sift through these numbers, they increasingly become bellwethers of longer-term economic health and opportunity.
The Impact of China’s Economy
The market’s perception of China’s economic performance is still a major driver for the value of the NZD. Most notably, China just announced its biggest trade surplus since June thanks to a record-breaking export increase that far outmatched the growth of imports. This advancement is sweet news indeed for New Zealand – a powerful testament to the depth of their trading relationship.
Given that China is New Zealand’s largest trading partner, developments concerning its economy can have a major impact on the NZD. China’s huge trade surplus helps underpin confidence in the New Zealand export story. This leads to the appreciation of the NZD. Speculators are wary of making bets on the NZD as they move to reflect larger economic depths in China. This revelation further establishes NZD as an indispensable economic element in their forex trading decisions.
One such expectation is that Federal Reserve Chairman Jerome Powell’s “hawkish cut” will strengthen the U.S. dollar in the short term. This creates another factor traders will need to consider when trading NZD/USD pair. As conditions change across the world, traders will surely be watching closely these developments with an eagle eye.
Interest Rate Decisions and Future Outlook
Traders are preparing for Wednesday’s interest rate decision from the U.S. Federal Reserve. This announcement will be one of the most consequential to the market. Analysts are expecting a 25 bps cut to the new target range of 3.50% to 3.75%. The CME FedWatch tool indicates a high probability of movement in that direction soon. In fact, there’s almost a 90% certainty that this change will take place.
Even only a 50bp drop in both the RBNZ and Fed rates would have far-reaching consequences for NZD/USD. Such an environment in the U.S. would likely intensify the searching for yield by increasing demand for riskier assets. This includes currencies like the New Zealand Dollar (NZD). If the Fed bites off more than is already priced in, that would put even more upward pressure on the USD. This shift could pose new risks to the NZD.