- The New Zealand Dollar declines in the early Asian session on Wednesday.
- The RBNZ cut the interest rate by 50 bps to 4.75% as anticipated.
- The September FOMC minutes will be in focus on Wednesday.
The New Zealand Dollar (NZD) loses momentum to near the lowest level since mid-August on Wednesday. The Reserve Bank of New Zealand (RBNZ) decided to cut the official cash rate (OCR) by 50 basis points (bps) from 5.25% to 4.75% at its October meeting, as widely expected. The Kiwi attracts some sellers in an immediate reaction to the interest rate decision. Furthermore, Chinese officials are letting traders down without further major stimulus. This, in turn, drags the NZD, China’s proxy, down against the US Dollar, as China is a major trading partner for New Zealand.
Going forward, traders will be keeping an eye on the Federal Open Market Committee (FOMC) minutes later on Wednesday. On Thursday, the focus will be on US Consumer Price Index (CPI) data for September. Should the report show a softer than expected result, this could weigh on the USD and help limit the pair’s losses.
Daily Market Summary: New Zealand Dollar Remains Weak After RBNZ Rate Decision
- According to the RBNZ’s Monetary Policy Statement (MPS), the committee assesses that annual consumer price inflation is within its inflation target range of 1-3%.
- The Committee agreed that it is appropriate to cut the OCR by 50 basis points to achieve and maintain low and stable inflation while seeking to avoid unnecessary instability in production, employment, interest rates and the exchange rate, said the MPS of the RBNZ.
- Federal Reserve (Fed) Vice Chairman Philip Jefferson said on Tuesday that the US central bank’s 50 basis point (bp) interest rate cut in September was aimed at keeping the labor market strong even as inflation continues to decline, according to Reuters.
- Atlanta Fed President Raphael Bostic stated Tuesday that the labor market shows no signs of weakness, adding that despite significant progress in inflation, headline price numbers have yet to reach target levels.
- New York Fed President John Williams said he strongly supported a 50 basis point (bp) rate cut at the last meeting and that the two additional 25 bp cuts this year are a “pretty reasonable representation of a base case,” according to Reuters.
Technical Analysis: New Zealand Dollar Resumes Bearish Bias
The New Zealand dollar weakens on the day. The NZD/USD pair continues its downtrend as it crosses below the 100-day EMA and is set to break below the uptrend channel on the daily chart. The downward momentum is supported by the 14-day Relative Strength Index (RSI), which is below the midline near 41.10, supporting short-term sellers.
A decisive break below the lower boundary of the trend channel of 0.6135 could pave the way towards the psychological level of 0.6000. Sustained trading below this level could lead to a decline towards 0.5974, the August 15 low.
To the upside, the 100-day EMA at 0.6142 acts as an immediate resistance level for the pair. Extended gains will see a rebound to 0.6254, the September 6 high. The additional upside filter to watch is 0.6300, a round figure, en route to 0.6365, the upper limit of the trend channel.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. The evolution of the Chinese economy tends to move the Kiwi because China is New Zealand’s largest trading partner. The bad news for the Chinese economy will likely mean fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor moving the NZD is dairy product prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also drive up bond yields, making investors more attractive to invest in the country and thus boosting the NZD. On the contrary, lower interest rates tend to weaken the NZD. The so-called rate differential, or what rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.
The release of macroeconomic data in New Zealand is key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive overall market risks to be low and are optimistic about growth. This usually translates into a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
