The NZD/USD pair is facing selling pressure near 0.5865 in the early Asian session on Monday. The US dollar (USD) is strengthening against the New Zealand dollar (NZD) as the US-Israel war with Iran shows no sign of resolution, boosting demand for the safe haven.
China’s Consumer Price Index (CPI) rose 1.3% in February, compared with a 0.2% increase in January, the latest data from China’s National Bureau of Statistics showed on Monday. This figure is higher than the market consensus of 0.8%. Meanwhile, China’s Producer Price Index (PPI) fell 0.9% in February, compared with a 1.4% drop in January, better than expectations of -1.1%.
On a monthly basis, inflation in China rose to 1.0% MoM in February, compared to a 0.2% increase previously. However, encouraging Chinese economic data failed to boost the Aussie as markets remained cautious amid rising tensions in the Middle East.
Iran elected Mujtaba Khamenei as the country’s supreme leader just one week after his father, Ayatollah Ali Khamenei, was killed in US-Israeli attacks. Donald Trump, the President of the United States, said that he will influence the future supreme leader of Iran and said that whoever is elected to this position without the consent of Washington “will not last long”.
New Zealand Dollar Questions
The New Zealand Dollar (NZD), also known as the Kiwi, is a popular trading currency among investors. Its value is largely determined by the health of the New Zealand economy and the policies of the country’s central bank. However, there are some unique features that can make the NZD move. China’s economic performance tends to drive Kiwis as China is New Zealand’s largest trading partner. The bad news for China’s economy is that New Zealand’s exports to the country are likely to drop, hitting the economy and thus its currency. Another factor that moves the NZD is the price of milk, as the dairy industry is New Zealand’s main export. Higher dairy prices boost export earnings, contributing positively to the economy and thus the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain inflation between 1% and 3% over the medium term, with a focus on keeping it close to the 2% median. For this purpose, the bank sets the appropriate interest rate. When inflation is too high, the RBNZ will raise interest rates to calm the economy, but this move will also push bond yields higher and attract investors to invest in the country, thereby boosting the NZD. Conversely, low interest rates tend to weaken the NZD. The so-called rate differential, or how rates in New Zealand compare to rates set or expected by the US Federal Reserve, can play a key role in the movement of the NZD/USD pair.
The release of macroeconomic data in New Zealand is key to assessing the state of the economy and can affect the valuation of the New Zealand dollar (NZD). A strong economy based on high economic growth, low unemployment and high confidence bodes well for the NZD. Strong economic growth attracts foreign investment and could encourage the Reserve Bank of New Zealand to raise interest rates if that economic strength is accompanied by rising inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk, or when investors perceive broader market risks to be 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, the NZD weakens during times of market turmoil or economic uncertainty, as investors tend to sell higher-risk assets and flee to stable safe havens.
