• NZD/USD appreciates to session highs at 0.5600 from Friday's lows at 0.5527.
• The first results of New Zealand's general election give a narrow victory to the governing coalition.
• Market sentiment has improved as strong US labour data has eased concerns about an AI crisis.

The New Zealand Dollar (NZD) has bounced up strongly against the US Dollar (USD) on Monday, following a tight result in New Zealand's general election amid a fragile appetite for risk at the start of the trading week. The NZD/USD pair has reached session highs at 0.5600, up from 0.5527 lows on Friday, although it is trading at the 0.5590 area at the time of writing.

Prime Minister Christopher Luxon seems to have obtained enough support to remain in power as his Centre-right National Party and the supporting Labour Party together hold 67 of the 131 seats in Parliament. The coalition, however, has lost about 30% of the previous election's support, as voters abandoned traditional parties for more radical, minor parties, like the leftist Greens or the libertarian Act Party.

Final results, however, will have to wait, as there are still about 400,000 votes from New Zealanders living abroad or outside the voter’s electorate that will not be counted until November 27. The leaders of the major parties affirmed that they will not start coalition negotiations until the final results are known.

AI fears have eased, but risk appetite remains fragile

Meanwhile, market sentiment has improved somewhat since last week, as the strong US Nonfarm Payrolls figures seen on Friday contributed to ease concerns about the challenges ahead for the AI sector, at least for now. Asian Markets have bounced up from lows, with most equity indexes showing minor advances, although the tech-heavy Kospi Index remains 0.8% down, which shows that risk appetite is still subdued.

In the US, Nonfarm Payrolls beat expectations on Friday with a 165K increase in net jobs, well above the 65K expected, and with the Unemployment Rate falling unexpectedly to 4.1% in October, from 4.2% in the previous month.

These figures boosted hopes that the Federal Reserve (Fed) will hike rates again in December, a view that was endorsed later in the day by New York Fed President John Williams, San Louis Fed President Alberto Musalem, and San Francisco Fed President Mary Daly.

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.

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.