New Zealand Dollar edges lower below 0.5900 as China’s economy slows in July
- NZD/USD softens to near 0.5895 in Tuesday’s Asian session.
- China’s Retail sales grew 0.6% YoY in July; Industrial production expanded 4.5% YoY during the same period.
- Expectations of a US interest rate hike next month eased.
The NZD/USD pair declines to around 0.5895 during the Asian trading hours on Tuesday. Weaker-than-expected Chinese Retail Sales and Industrial Production data weigh on the China-proxy New Zealand Dollar (NZD) against the US Dollar (USD).
China’s Retail Sales arrived at a 0.6% growth from a year earlier, according to the National Bureau of Statistics on Monday. This figure came in worse than the estimated 1.5% and slowed from the 1.0% growth in June. Additionally, Industrial Production rose 4.5% YoY in July, versus 5.3%, falling for the first time in three months and missing expectations.
Statistics Bureau spokesperson Fu Linghui said that geopolitical pressure abroad and high temperatures domestically impacted China’s economy last month. The report indicated China’s economy lost momentum across the board in July, which dragged the Kiwi lower as China is a major trading partner of New Zealand.
However, lower bets for a US Federal Reserve (Fed) rate hike could undermine the Greenback and act as a tailwind for the pair. Markets are now pricing in a September quarter-point hike, flipped to a near-65% chance of a hold, after softer consumer price inflation and weaker retail sales.
Kiwi support tempered as RBNZ seen pausing after July hike
Commerzbank’s Volkmar Baur notes that “in about two weeks, the Reserve Bank of New Zealand will hold its next monetary policy meeting,” and, based on the softer inflation indicators released this morning, “it seems unlikely that it will raise interest rates for a second consecutive time following the July hike.” While the latest data argue for a pause after July’s move, Baur expects the RBNZ to retain a hawkish tone given ongoing Middle East risks, which should offer some near-term support to the Kiwi even as a weak domestic economy weighs on the longer-term outlook.
Technical Analysis: NZD/USD
In the daily chart, NZD/USD holds a constructive bullish bias as spot remains above both the 100-day moving average and the Bollinger middle band. The pair is approaching the Bollinger upper band, which caps the immediate topside, while the Relative Strength Index (14) around 61 sits in bullish but not overbought territory, suggesting that buying pressure persists yet may slow as price nears overhead supply.
On the downside, initial support is offered by the Bollinger middle band at 0.5855, reinforced by the 100-day moving average at 0.5830 slightly lower, with the Bollinger lower band near 0.5765 acting as a deeper cushion in case of a broader pullback.
On the topside, a clear break above the Bollinger upper band at 0.5945 would open the door for an extension of the recovery, while failure to overcome this barrier would likely trigger consolidation or a corrective dip toward the aforementioned support cluster.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.