• NZD/USD recovers as Kiwi receives support from promising trade data and PBoC’s decision to keep interest rates unchanged
• The US dollar sell-off continues, hitting new lows as US Federal Reserve policymakers hint at interest rate cuts in September.
• New Zealand’s trade deficit narrows in July compared to 2023 as exports rise.

NZD/USD is trading over half a percent higher on Tuesday, changing hands at 0.6140, while the US dollar (USD) continues to decline. The New Zealand dollar is maintaining its strength on news that demand for New Zealand exports narrowed the trade deficit in July compared to a year earlier.

New Zealand’s trade deficit was NZ$0.963 billion in July 2024, narrowing from NZ$1.174 billion in the corresponding month last year, but the result fell short of forecasts for a NZ$331 million surplus. Given the cyclical nature of the trade data and concerns over the economic slowdown in China, a key export partner, the data was interpreted as positive overall.

The US dollar, meanwhile, fell to an eight-month low of 101.80, according to the US Dollar Index (DXY), which measures the USD against a trade-weighted basket of currencies. The dollar’s weakness was attributed to comments from US Federal Reserve policymakers confirming their willingness to cut interest rates in September. Lower interest rates are negative for a currency as they reduce foreign capital inflows.

According to Reuters, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said on Monday that concerns about a weakening labor market made it appropriate to discuss a possible cut in U.S. interest rates in September.

His comments came after Chicago Fed President Austan Goolsbee said in a speech on Sunday that the economy was “sending warning signals” and that the rise in credit card delinquencies was particularly worrying.

The New Zealand dollar is the strongest major currency index against the USD on Tuesday. In addition to the upbeat trade data, news that the People’s Bank of China (PBoC) decided to keep its benchmark one-year loan rate unchanged at its meeting early Tuesday may have further strengthened the NZD as it suggests that the Chinese economy may be in slightly better shape than previously feared.

According to trade data released by Statistics New Zealand on Monday, New Zealand exports rose 14% in July compared with the same period last year, reaching NZ$6.1 billion. This increase was mainly due to higher shipments of milk powder, butter and cheese (+11%), fruit (+28%), milk, cereals, flour and starch preparations (+86%) and crude oil (+310%).

New Zealand imports rose only 8.5%, due to higher purchases of petroleum and petroleum products (+101%), electrical machinery and equipment (+12%), pharmaceutical products (+32%) and plastics and plastic articles (+13%), according to data from Trading Economics.

However, the uptrend for the kiwi may face resistance as the Reserve Bank of New Zealand (RBNZ) decided to make a surprise 0.25% cut to its key interest rate at its meeting last week. After the meeting, RBNZ Governor Adrian Orr said he was increasingly convinced that inflation was back in the 1-3% target range, increasing the likelihood of further rate cuts in the future – a potential headwind for the kiwi going forward.