New Zealand votes Saturday with the Kiwi back below 0.5600

NZD/USD has fallen back below 0.5600 after a run above 0.5650 on Thursday.
December RBNZ hike odds are under 50%, and the Dollar is up off its midterm low.
New Zealand votes on Saturday, with neither main party on course for a majority.

New Zealand votes on Saturday with the Kiwi back where it was before the Dollar fell to a one-month low on US midterm results. NZD/USD rose above 0.5650 on Thursday and has fallen to the session low just under 0.5600. That wipes out all of Wednesday's gains from a low that was the pair's lowest since October 14.

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The Reserve Bank of New Zealand (RBNZ) held at 2.75% on October 28 by four votes to three and said tighter policy is likely, without a date. A December hike was priced near 75% at the start of the week and is under 50% after the third-quarter jobs figures. The final Freshwater poll had Labour at 30.7% and Prime Minister Luxon's National at 26.4%, with the Opportunity party on 5.1% holding the balance.

Wednesday's Dollar drop to a one-month low came after the Democrats took Congress, and Thursday's US figures gave some of it back. Jobless claims were 189K against a forecast of 196K, and third-quarter productivity rose 3.6% against a 2.5% forecast. Pricing for a Fed hike on December 9 is near 70%, and the Fed's 3.75%-4.00% stays above the RBNZ's 2.75% with or without it.

On the calendar

Saturday's election comes first. China's October Consumer Price Index (CPI) comes at 01:30 GMT on Monday, after 0.9% on the year, then its trade figures at 03:00 GMT on Tuesday, after exports grew 36.3%. New Zealand's October manufacturing Purchasing Managers Index (PMI) is due on Thursday, November 12, at 21:30 GMT, after 56.5, and the next RBNZ decision comes with December's Monetary Policy Statement.

Friday brings October's Nonfarm Payrolls (NFP) at 13:30 GMT, seen at 65K after 29K, and October's CPI is due on Tuesday, November 10, forecast at 0.3% after 0.6%. Both feed the Fed meeting of December 8-9, the bigger rate in the pair.

On the charts

The pair has given back about four-fifths of its climb from the October 14 low near 0.5550 to the October 22 high near 0.5700. It has been under the 50-day Exponential Moving Average (EMA), just under 0.5700, since the RBNZ's hold, and the 200-day EMA is just under 0.5800. Daily momentum has been falling from overbought since late October.

NZD/USD daily chart

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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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