New Zealand Dollar strengthens against USD after Nonfarm Payrolls

  • New Zealand Dollar rises versus the US Dollar following the release of US employment data. 
  • US Nonfarm Payrolls rose higher than expected in February, but gains were offset by wage and unemployment data. 
  • Hourly Earnings fell from what was expected, and the Unemployment Rate unexpectedly rose, suggesting underlying labor market weakness. 

The New Zealand Dollar rises against the US Dollar on Friday, after the release of US Nonfarm Payrolls data suggests disinflationary tendencies that could bring forward the time of the Federal Reserve’s (Fed) first expected interest rate cut. 

NZD/USD – the number of US Dollars that one New Zealand Dollar can buy – rose to day’s high of 0.6218 on Friday, during the US session, following the release of the Bureau of Labor Statistics (BLS) report. If the data prompts an earlier rate cut from the Fed, it will be negative for the US Dollar as lower rates attract less foreign capital inflows. 

Whilst the headline NFP figure showed the economy adding 275K jobs in February, which was higher than the 200K expected, the other data in the BLS report suggested weaknesses in the labor market. 

Average Hourly Earnings, which are a key component of inflation, rose by a lower-than-expected 4.3% YoY and 0.1% MoM. Both were below the 4.4% and 0.3% predicted. The Unemployment Rate, meanwhile, rose to a higher-than-expected 3.9% when it had been projected to stay put at 3.7%. 

The data suggests less inflationary pressure from wages and low unemployment, which could prompt the Fed to bring forward interest rate cuts to earlier in the year. Lower interest rates are negative for the US Dollar as they reduce foreign capital inflows. 

New Zealand Dollar supported by Brighter outlook for China 

The New Zealand Dollar (NZD) has been further supported by the release of better-than-expected trade data from its largest export partner, China, on Thursday. 

The Chinese Trade Balance data showed an unexpected rise in the country’s trade surplus to $125.16 billion in February, according to data from the General Administration of Customs for the People’s Republic of China. 

Economists had expected the Trade Balance to come out at only $103.70 billion, from a lower $75.34 billion in the previous month of January. 

The higher surplus is a sign of economic health and suggests greater prosperity, leading to increased demand for New Zealand exports, primarily milk and dairy products. This, in turn, is likely to result in an increase in demand for New Zealand’s currency. 

Technical analysis: NZD/USD rising in a range

NZD/USD is trading plum in the middle of a sideways consolidation that has lasted for over a year. The long-term trend is too opaque to guess, suggesting little overall directional bias. 

New Zealand Dollar vs US Dollar: Daily chart

The top of the range lies at 0.6400, with only a break above indicating a bullish trend developing. The range bottom – if one can be deduced amongst all the ups and downs – lies near 0.5800. Price would need to sink to below this level to turn the trend bearish. 

Since Wednesday, price has bounced back from support at the level of the 100 and 200-day Simple Moving Averages (SMA) acting in concert near 0.6090. Although the recovery has been strong, it is not enough to deduce that a short-term uptrend is in play. 

If Friday (today) ends as a green up day, a bullish Three White Soldier Japanese candlestick pattern will have formed, suggesting a greater chance of a bullish continuation. However, given the generally sideways nature of the pair, even such a pattern might not be so reliable unless accompanied by a key shift in fundamentals.

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.

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