- NZD/USD fell from 0.6250 after a strong recovery in the US Dollar.
- US core annual PCE inflation is estimated to have accelerated to 2.7% in July.
- The RBNZ is expected to make further interest rate cuts this year.
The NZD/USD pair is down after facing selling pressure near 0.6250 in the North American session on Wednesday. The New Zealand pair is falling as the US Dollar (USD) is recovering strongly after posting a fresh yearly low. The US Dollar Index (DXY), which tracks the value of the Greenback against six major currencies, is extending its recovery above 101.00 from its yearly (YTD) low of 100.50.
A decent recovery in the US dollar seems to be driven by uncertainty among market participants as the core US personal consumption expenditure (PCE) inflation for July is in focus. This has also weighed on risk-sensitive assets.
Investors await inflation data from PCE US stocks are looking for fresh clues on the Federal Reserve’s (Fed) interest rate cut path. Traders have now fully priced in market expectations that the Fed will start cutting its key interest rates in September, although they are uncertain whether the potential size of the rate cut will be 25 or 50 basis points (bps).
The US PCE report data is expected to show that annual core inflation rose at a faster pace to 2.7% from 2.6% in June, with monthly figures growing steadily by 0.2%.
Meanwhile, investors have shored up the US Dollar against the New Zealand Dollar (NZD), but the Kiwi’s performance against other major peers has remained firm despite market participants expecting the Reserve Bank of New Zealand (RBNZ) to cut interest rates aggressively this year. The RBNZ unexpectedly shifted to policy normalisation two weeks ago.
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.
