- NZD/USD is trading sideways around 0.5950, with investors focused on the US NFP report for July.
- The Fed is expected to reverse its restrictive policy framework starting in September.
- The risk-averse sentiment in the market has weakened the short-term outlook for the New Zealand Dollar.
The NZD/USD pair is trading in a narrow range near 0.5950 in the European session on Friday. The pair is showing indecision among market participants as investors await the United States (US) Non-Farm Payrolls (NFP) data for July, due out at 12:30 GMT.
The NFP report will indicate the current state of the labor market, which will influence market speculation about Federal Reserve (Fed) interest rate cuts in September. According to estimates, US employers are expected to have hired 175,000 new workers, down from the 206,000 payrolls recorded in June. The unemployment rate is expected to remain stable at 4.1%.
Aside from the employment figures, investors will be focusing on average hourly earnings data, a key measure of wage growth that drives consumer spending and eventually influences price pressures. On an annual basis, the wage growth measure is estimated to have slowed to 3.7% from the previous reading of 3.9%, with the monthly figure growing steadily by 0.3%.
Meanwhile, market expectations for a Fed rate cut are firm, as Fed Chair Jerome Powell acknowledged that policymakers have gained greater confidence that inflation will return to the desired 2% rate from the Consumer Price Index (CPI) reports released in the second quarter. Jerome Powell said that rate cuts will be on the table in September if inflation continues to decline in a manner consistent with the bank’s expectations.
In the Asia-Pacific region, the overall outlook for the New Zealand Dollar (NZD) remains weak as investors turn risk-averse amid fears of a slowdown in the US economy. Additionally, China’s vulnerable economic outlook has dampened investors’ risk appetite.
Looking ahead, the main trigger for the New Zealand dollar will be the second quarter Employment and Labour Cost Index data, due on Tuesday. The employment data will influence market expectations for Reserve Bank of New Zealand (RBNZ) rate cuts this year.
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.
