NZD/USD holds positive ground above 0.5750 after mixed Chinese data
- NZD/USD gains ground to around 0.5775 in Monday’s Asian session, adding 0.30% on the day.
- China’s November Industrial Production climbed 5.4%, Retail Sales rose 3.0%.
- A possible hawkish rate cut by the Fed could underpin the Greenback.
The NZD/USD pair attracts some buyers to near 0.5775, snapping the four-day losing streak during the Asian trading hours on Monday. The attention will shift to the preliminary US December Purchasing Managers Index (PMI) for fresh impetus, which is due later on Monday.
Data released by the National Bureau of Statistics of China showed on Monday that the nation’s Industrial Production rose 5.4% YoY in November, compared to 5.3% in October. This reading came in stronger than the expectation of 5.3%. Meanwhile, Retail Sales rose 3.0% YoY in November versus 4.8% prior, below the market consensus of 4.6%. The New Zealand Dollar (NZD) remains firm in an immediate reaction to the mixed Chinese economic data.
Chinese authorities announced on Thursday that they will unveil a bigger fiscal deficit to boost consumption next year following the Central Economic Work Conference. This follows a commitment made at the huddle of the decision-making Politburo last week to pump more stimulus into the world's second-largest economy. This, in turn, could underpin the China-proxy Kiwi, as China is a major trading partner to New Zealand.
On the USD’s front, a possible hawkish rate cut by the Federal Reserve (Fed) at its December meeting on Wednesday might support the US Dollar (USD) and act as a headwind for the pair. The cautious approach reflects a strengthening US economy, noted by Chair Jerome Powell. Investors see the Fed lowering the interest rates by a quarter of a percentage point at the December meeting, with more attention focused on policymakers' new economic projections released alongside the decision.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.