- NZD/USD is seeing fresh selling on Tuesday amid USD buying.
- Expectations of an early RBNZ rate cut and China’s economic problems contribute to the decline.
- Traders are looking to Fed Chairman Jerome Powell’s speech for a short-term boost.
The NZD/USD pair is under renewed selling pressure during the Asian session on Tuesday and momentarily drops below the mid-0.6000 zone for the first time since mid-May. Spot prices appear to have confirmed a downside break through the 50-day simple moving average (SMA) and look vulnerable to extending a three-week downtrend amid buying pressure around the US Dollar (USD).
Concerns that a Trump presidency would be more inflationary than a Biden administration pushed the benchmark 10-year government bond yield to its highest level in a month on Monday. This, in turn, helps the USD consolidate the solid overnight rebound from a multi-day low. The New Zealand Dollar (NZD), on the other hand, is weighed down by expectations that the Reserve Bank of New Zealand (RBNZ) will cut rates sooner than projected.
Apart from this, China’s economic woes further contribute to diverting flows away from the antipodean currencies, including the Kiwi. USD bulls, meanwhile, might refrain from placing aggressive bets and prefer to wait for further clues on the Federal Reserve’s (Fed) future policy decisions amid rising expectations of an imminent start of the rate-cutting cycle in September. Therefore, the focus will remain on Fed Chair Jerome Powell’s speech later today.
Apart from this, Tuesday’s US economic docket – which includes the JOLTS job openings data – could influence the USD price dynamics and provide some impetus to the NZD/USD pair. Attention will then shift to the minutes of the FOMC meeting on Wednesday and the release of the US monthly employment data – popularly known as the non-farm payrolls (NFP) report – on Friday. This, in turn, will determine the near-term trajectory of the dollar and the currency pair.
The Fed FAQs
Monetary policy in the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its main tool for achieving these goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises interest rates, increasing borrowing costs throughout the economy. This translates into a strengthening of the US Dollar (USD), as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which weighs on the greenback.
The Federal Reserve (Fed) holds eight meetings a year, at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC consists of twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the eleven regional Reserve bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a jammed financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically weakens the US dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the capital of maturing bonds in its portfolio to buy new bonds. It is usually positive for the value of the US dollar.
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.
