- NZD/USD depreciates on market caution ahead of US Personal Consumption Expenditure Price Index data for August.
- The rise of the US dollar could be limited due to the dovish speech of the Fed.
- The ANZ Roy Morgan Consumer Confidence Index rose to 95.1 points in September, from 92.2 previously.
NZD/USD gives back its recent gains, trading around 0.6300 during European hours on Friday. This drop is attributed to the improvement in the US Dollar (USD) amid market caution ahead of the US Personal Consumption Expenditure Price Index (PCE) data for August. The Fed’s preferred inflation gauge is scheduled to be released later in the North American session.
On the data front, the US Annualized Gross Domestic Product increased at a rate of 3.0% in the second quarter, as estimated, according to the US Bureau of Economic Analysis (BEA). . on Thursday. Meanwhile, the GDP Price Index rose 2.5% in the second quarter.
Additionally, US Initial Jobless Claims for the week ending September 20 were reported at 218K, according to the US Department of Labor (DoL). This figure was below the initial consensus of 225K and was lower than the previous week’s revised number of 222K (previously reported as 219K).
However, the US dollar may have received downward pressure following dovish comments from US Federal Reserve (Fed) officials. According to Reuters, Fed Governor Lisa Cook stated on Thursday that she supported the interest rate cut of 50 basis points (bp) last week, citing increased “downside risks” to employment.
On the Kiwi front, the ANZ Roy Morgan Consumer Confidence Index rose for the third consecutive month, reaching 95.1 points in September, up from the previous reading of 92.2. This marked the highest reading since January 2022.
However, the New Zealand Dollar (NZD) is under pressure due to growing expectations that the Reserve Bank of New Zealand (RBNZ) will cut interest rates again in October, with markets pricing in a 67% chance of a rate cut of 50 basis points. Investors currently anticipate the 5.25% cash rate to decline to 2.83% by the end of 2025.
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.
