- NZD/USD gains ground to around 0.6075 in the Asian session on Monday.
- The Chinese central bank reduced the 1-year Prime Lending Rate to 3.10% from 3.35%, more than expected.
- Expectations of less aggressive Fed easing could support the USD.
The NZD/USD pair is trading in positive territory near 0.6075 during the early Asian session on Monday. The pair rises amid widespread weakness in the US Dollar (USD) and the announcement of rate cuts in China. Later on Monday, Neel Kashkari and Jeffrey Schmid of the Federal Reserve (Fed) are scheduled to speak.
On Monday, the People’s Bank of China (PBoC) decided to cut the one-year LPR by 25 basis points (bp) from 3.35% to 3.10% and cut the five-year LPR from 3.85% to 3.60%. . China’s latest move to revive growth and combat deflation is likely to support New Zealand (NZD) as China is a major trading partner for New Zealand.
However, growing expectations of more aggressive easing by the Reserve Bank of New Zealand (RBNZ) amid a fall in inflation to the central bank’s target range of 1% to 3% in the third quarter could limit the rise of the NZD.
On the other hand, bets on a less aggressive Fed easing policy could boost the Dollar against the Kiwi. The probability of an additional quarter-point cut in November is more than 90%. Financial markets have priced in two 25 basis point (bp) interest rate cuts before the end of 2024 and further rate cuts next year, likely bringing the policy rate to the 3.25%-3.5% range by September 2025, according to Reuters.
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.
