- The New Zealand Dollar weakened in early Asian trading on Thursday.
- The RBNZ’s dovish stance continues to weaken the Kiwi.
- Investors are looking to US data for further impetus, including retail sales, initial jobless claims and the Philadelphia Fed manufacturing index.
The New Zealand Dollar (NZD) remains on the defensive on Thursday. The Reserve Bank of New Zealand’s (RBNZ) dovish stance following a surprise rate cut on Wednesday has put selling pressure on the Kiwi as the easing cycle came much sooner than expected.
However, further confirmation of the downward trajectory of inflation in the US has triggered expectations of an interest rate cut by the Federal Reserve (Fed) in September. This, in turn, could drag the US Dollar (USD) lower and limit the downside of the NZD/USD. Later on Thursday, traders will be keeping an eye on US Retail Sales, Weekly Initial Jobless Claims, Philly Fed Manufacturing Index and Industrial Production.
Daily Market Wrap: New Zealand Dollar remains vulnerable after dovish RBNZ move
- RBNZ Governor Adrian Orr said early on Thursday that the central bank is maintaining an appropriately restrictive policy stance and is likely assessing when to implement future rate cuts.
- RBNZ board members decided to cut their Official Cash Rate (OCR) by 25 basis points (bps) from 5.50% to 5.25%. Market participants had expected a decision to keep rates unchanged.
- Board members agreed that policy will need to remain tight for some time to ensure domestic inflationary pressures continue to ease, according to minutes of the RBNZ interest rate meeting.
- During the press conference, RBNZ’s Orr said he was confident inflation would return to his target band and he could begin to normalize rates. Orr also said the central bank had considered a range of moves; the consensus was 25 bps.
- The US Consumer Price Index (CPI) rose 2.9% year-on-year in July, compared with a 3% increase in June, below the market consensus. The core CPI rose 3.2% year-on-year after a 3.3% increase seen in July, in line with the market forecast.
Technical analysis: New Zealand dollar maintains negative outlook
The New Zealand Dollar is trading in the negative territory on the day. The bearish outlook for the NZD/USD pair remains intact as the pair faces rejection around the key 100-day exponential moving average (EMA) and the downtrend line around 0.6050 on the daily chart. The 14-day Relative Strength Index (RSI) is pointing lower below the mid-line of 50, suggesting persistent bearish pressure.
The crucial resistance level for NZD/USD appears at 0.6050, the key 100-day EMA and the downtrend line. If the price manages to break above this level, it would signal the possibility of further upside towards 0.6077, the upper boundary of the Bollinger Band. Further north, the next barrier emerges at 0.6154, the high of July 8.
On the downside, a break of the psychological level of 0.6000 would see a drop to 0.5930, a low of August 2. Extended losses will see the next level of contention around 0.5857, the lower boundary of the Bollinger Band and a low of July 29.
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 policies of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. Developments in the Chinese economy tend to move the Kiwi because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely translate into fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor that moves the NZD is dairy 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 push up bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate spread, or how 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.
Macroeconomic data releases in New Zealand are 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 can 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 that overall market risks are low and are optimistic about growth. This often translates into a more favourable 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.
