New Zealand Dollar Outperforms

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The New Zealand Dollar is an outperformer in the G10 currency space amidst rising equity markets and news of a significant potential boost for the Chinese economy.

The Pound to New Zealand Dollar exchange rate is lower by a third of a per cent at 2.0778 on news Chinese authorities are preparing a major package to rescue the country's beleaguered property sector.

"NZD/USD received a boost from the stronger CNH," says Kristina Clifton, FX strategist at CBA. Clifton says the Renminbi rose following media reports that the Chinese government is considering buying unsold homes from distressed developers at a discount using loans from state-owned banks.

The New Zealand Dollar is up a third of a per cent against the U.S. Dollar, trading at its highest level since April 10. In fact, the Kiwi is the day's best-performing major currency:

Above: NZD performance on May 15. Track NZD with your own custom rate alerts. Set Up Here 

According to reports, the new plans would see Chinese state-owned enterprises asked to help purchase unsold homes from distressed developers at steep discounts using loans provided by state banks. Many of the properties would then be converted into affordable housing.

While Chinese authorities have made several attempts to support the country's housing sector, Bloomberg reports that the latest plans are the "most ambitious attempt yet."

A significant proportion of China's growth boom of the 2010s was driven by a significant residential property expansion, but this all came to a halt during the Covid years. High-profile corporate failures and plummeting consumer expenditure and confidence were the result, weighing on the economy more broadly.

Although New Zealand does not have a major link with the Chinese property sector - which the Aussie Dollar does - the boost to global sentiment related to the latest news of a credible rescue plan is supportive.

Any improvement in the Chinese property sector would underpin broader Chinese consumer sentiment, which is important for New Zealand's largely agrarian-based exports.

The global backdrop remains supportive of the NZD in the near term, although the midweek release of U.S. inflation figures will test the rally. There was some excitement Tuesday when PPI inflation from the U.S. beat expectations, prompting a Dollar rally and market slide.

But when the finer details of the report were digested, it was clear that this was, in fact, quite a benign report, and markets reversed course.

"The PPI details were not all bad which helped shape the market response. The PPI elements that feed into the PCE data at the end of the month were more subdued," explains Derek Halpenny, Head of Research for Global Markets EMEA at MUFG Bank Ltd.

"Financial markets had a remarkable session yesterday," says Marco Valli, Global Head of Research at UniCredit Bank. "What made the day remarkable were solid gains in US equity markets... the S&P 500 finished just six index points short of another all-time-high."

But this NZD-supportive environment will be severely tested today with the release of U.S. inflation figures; any above-consensus report could cause a decent pullback in global equities which will weigh on the Kiwi.

The New Zealand currency is considered a 'high beta' currency in that it has a consistent and reliably positive relationship with global sentiment. Any setback due to strong U.S. inflation could flip NZD from the day's best performer to one of its poorest.

That said, an undershoot in the figures will turbocharge the current rally and send the NZD to fresh multi-week highs against the Dollar and British Pound.