New Zealand Dollar depreciates as US Dollar gains ahead of Nonfarm Payrolls
- NZD/USD depreciates on caution ahead of US Nonfarm Payrolls release.
- Falling US bond yields, oil price drops, and Democratic sweep expectations help restrain broader USD gains.
- Soft domestic employment data and upcoming election uncertainty continue to weigh on the New Zealand Dollar.
NZD/USD remains subdued for the second successive day, trading around 0.5560 during European hours on Friday. The pair is depreciating as the US Dollar (USD) gains support amid widespread market caution. Investors are eagerly awaiting the upcoming US Nonfarm Payrolls (NFP) report, which is expected to play a critical role in shaping expectations for the Federal Reserve's December policy decision.
Current pricing via CME’s FedWatch tool indicates over 64% probability of a December Fed rate hike. However, upside momentum for the Greenback could be restrained by declining US bond yields, driven in part by a Democratic sweep in the US elections. The political outcome has sparked speculation about a potential end to the Iran war, which dragged oil prices lower, while also raising expectations of Washington political gridlock that could limit government spending and slow economic growth.
Meanwhile, the New Zealand Dollar (NZD) is struggling under the weight of weak domestic economic indicators and local political uncertainty. Data released earlier this week by Statistics New Zealand revealed that the unemployment rate climbed to 5.7% in the three months through September, marking its highest level in nearly 11 years, up from 5.6% in the previous quarter and exceeding the market consensus of 5.5%.
Adding to the pressure on the NZD, market attention shifts to the New Zealand general election on Saturday, November 7. Christopher Luxon's center-right National Party-led coalition faces mounting pressure to deliver policies that spur economic growth and alleviate cost-of-living strains. This is particularly critical given recent IPSOS polling, which identifies inflation and living costs as the paramount concerns for voters heading into the polls.
US payrolls keep markets on edge after volatile week
Commerzbank warns that “anyone hoping for a quiet trading session on Friday after this eventful week is likely to be disappointed,” with attention firmly fixed on the release of the latest US payroll figures. The bank underscores that these data “are one of the most important pieces of economic data and usually provide an indication of the Fed’s future monetary policy,” keeping markets alert for any labour-market signal that could shape expectations for the next policy moves.
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.
