The New Zealand Dollar is leading the way in the G10 currency space, buoyed by increasing equity markets and reports of a significant potential boost for the Chinese economy.
The Pound to New Zealand Dollar exchange rate is down by a third of a percent at 2.0778, following news that Chinese authorities are preparing a significant package to rescue the country's struggling property sector.
“NZD/USD received a boost from the stronger CNH,” stated Kristina Clifton, FX strategist at CBA.
Clifton reports that the Renminbi strengthened after media reports indicated that the Chinese government is contemplating buying unsold homes from struggling developers at reduced prices, with loans from state-owned banks, Pound Sterling Live reports.
The New Zealand Dollar has gained a third of a percent against the US Dollar, reaching its highest level since 10th April. Indeed, the Kiwi is the best-performing major currency of the day.
Reports suggest that the new plans would involve Chinese state-owned organisations assisting in the purchase of unsold homes from distressed developers at significant discounts, with loans provided by state banks. Many of these properties would then be converted into affordable housing.
Although authorities in China have made numerous attempts to boost the country’s housing sector, the latest plans are the “most ambitious attempt yet,” according to a Bloomberg report.
However, even though New Zealand does not have a significant connection to the Chinese property sector like the Australian Dollar does, the positive impact on global sentiment from the latest news of a credible rescue plan is supportive for the New Zealand Dollar.
Any improvement in the Chinese property sector would bolster broader Chinese consumer sentiment, which is crucial for New Zealand's largely agrarian-based exports.
The global backdrop continues to support the NZD in the near term, although the midweek release of US inflation figures will test the rally.
“Financial markets had a remarkable session yesterday. 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,” said Marco Valli, Global Head of Research at UniCredit Bank.
However, this NZD-supportive environment will face a significant test today with the release of US inflation figures. Any report above consensus could trigger a decent pullback in global equities, which would impact the Kiwi.
The New Zealand Dollar is considered a 'high beta' currency as it consistently correlates with global sentiment. Any setback due to strong US inflation could turn the NZ Dollar from the day's best performer to one of its worst.
Nevertheless, if the figures come in below expectations, it will supercharge the current rally and send the NZD to fresh multi-week highs against the Dollar and Sterling.