- NZD/USD finds support ahead of RBNZ interest rate decision looms.
- NZD upside could be limited by safe-haven flows amid rising tensions in the Middle East.
- The US dollar is supported by diminishing odds of a 50 basis point rate cut by the Fed.
NZD/USD extends gains for the second consecutive day, trading around 0.6040 during the European session on Tuesday. Traders are assessing the Reserve Bank of New Zealand (RBNZ) policy decision scheduled for Wednesday. The central bank is widely expected to maintain its current Official Cash Rate (OCR) at 5.5% for the ninth consecutive time.
New Zealand’s upbeat jobs report last week, combined with signs of improving demand from its trading partner China, reduces the likelihood of a rate cut by the Reserve Bank of New Zealand on Wednesday.
Safe-haven flows may have limited the upside of risk-sensitive currencies such as the New Zealand Dollar (NZD) amid rising geopolitical tensions in the Middle East. Israeli forces continued operations near the southern Gaza city of Khan Younis on Monday. CBC News quoted Palestinian medics as saying that Israeli military strikes in Khan Younis on Monday killed at least 18 people.
As for the USD, the US Federal Reserve (Fed) is expected to deliver a quarter-point rate cut at the September meeting. Previously, a 50 basis point rate cut was expected in September. According to the CME’s FedWatch tool, the probability of a 50 basis point (bps) cut in September has fallen to 50%, down from 85% last week.
Traders are likely to focus on the US Producer Price Index (PPI) data due on Tuesday and the Consumer Price Index (CPI) figures on Wednesday. Traders are looking for confirmation that price growth remains stable in the United States.
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.
