- NZD/USD remains in positive territory near 0.6130 in early Asian session on Tuesday.
- New Zealand’s central bank is expected to keep policy unchanged at its July meeting on Wednesday.
- Rising Fed rate cut bets are likely to weigh on the US Dollar.
The NZD/USD pair is trading on a stronger note around 0.6130 on Tuesday during early Asian trading hours. The US Dollar (USD) is consolidating as traders await testimony from Federal Reserve (Fed) Jerome Powell on Tuesday, ahead of the Reserve Bank of New Zealand (RBNZ) interest rate decision on Wednesday.
The RBNZ is expected to keep the official cash rate (OCR) unchanged at 5.50% at its July meeting on Wednesday, despite signs of weaker economic activity in New Zealand. Traders will take further cues from the Monetary Policy Statement. A hawkish stance by the RBNZ could support the New Zealand Dollar (NZD) in the near term.
On the other hand, growing speculation that the US Fed will cut interest rates earlier than expected this year is putting some selling pressure on the dollar. According to the CME FedWatch tool, traders are now pricing in a nearly 76% chance of Fed rate cuts in September, up from 64% a week ago.
On the US agenda, the Consumer Price Index (CPI) data for June could offer some clues on the trajectory of US inflation. US CPI inflation is forecast to fall to 3.1% YoY in June from 3.3% in May, while core inflation is projected to remain stable at 3.4% YoY in the same reporting period. Any signs of softer US inflation could drag the USD lower and create a tailwind for the NZD/USD pair.
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.
