- NZD/USD is holding steady following the release of an improved Business NZ Services Performance Index on Monday.
- The Business NZ PSI rose to 45.5 in August from 45.2 in July, reaching its highest level since April.
- The US dollar is under downward pressure amid uncertainty over the magnitude of the next Fed rate cut.
NZD/USD is holding its ground after recent losses in the previous session, trading around 0.6160 during Asian hours on Monday. Traders are digesting data showing a slight improvement in business activity in New Zealand.
The Business NZ PSI rose to 45.5 in August from 45.2 in July, marking its second consecutive monthly increase and reaching its highest level since April, although it remains in contraction territory.
The New Zealand Dollar (NZD) could struggle amid growing speculation that the Reserve Bank of New Zealand (RBNZ) will implement aggressive interest rate cuts. After unexpectedly beginning its policy easing cycle in August, the RBNZ is anticipated to reduce its Official Cash Rate (OCR) at each of its remaining policy meetings of the year.
Traders are expected to look to New Zealand’s second-quarter gross domestic product (GDP) data, scheduled for later in the week, for further insight into the Reserve Bank of New Zealand’s monetary policy outlook.
Investors are closely watching the US Federal Reserve’s (Fed) upcoming policy decision later this week. The market is divided on whether the Fed will implement a 25 basis point (bp) or 50 bp rate cut.
According to the CME’s FedWatch tool, markets are anticipating a 48.0% chance of a 25 basis point (bp) rate cut by the Federal Reserve at its September meeting. The probability of a 50 bp cut has risen to 52.0%, up from 50.0% a day ago.
Traders will be closely watching the FOMC press conference for insights into the future of US interest rates. If Fed Chair Jerome Powell signals a more aggressive easing approach, it could put downward pressure on the US dollar, providing a potential boost to 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.
