- NZD/USD has appreciated as the Fed’s Beige Book indicated minimal changes in economic activity in almost all districts.
- The US Dollar Index is trading just below its recent high of 104.57, marking its strongest point since late July.
- The New Zealand Dollar could struggle due to the increasing likelihood of another rate cut in November by the RBNZ.
NZD/USD gains ground as the US Dollar (USD) faces downward pressure following the release of the Federal Reserve (Fed) Beige Book on Wednesday. The latest report indicated that economic activity was “little changed in almost all Districts,” in contrast to the August report, where three Districts reported growth and nine showed flat activity. The pair is trading around 0.6010 during the Asian session on Thursday.
The US dollar weakened slightly, driven by a modest decline in US Treasury yields. The 2-year and 10-year Treasury yields stand at 4.07% and 4.23%, respectively, at the moment to write. However, the US Dollar Index (DXY), which tracks the value of the US dollar (USD) against six major currencies, soared to its highest level since late July, hitting 104.57 on Wednesday.
Signs of economic resilience and growing concerns about inflation have reduced the chances of a significant rate cut by the Federal Reserve in November. According to the CME FedWatch tool, there is an 88.9% probability of a 25 basis point rate cut, with no expectation of a cut larger than 50 basis points.
Traders are likely to keep their eyes on the S&P Global Purchasing Managers’ Index (PMI), a leading indicator measuring private business activity in the US manufacturing and services sectors, due to be released on Thursday.
However, the New Zealand Dollar’s (NZD) upside could be limited due to increasing odds of another rate cut in November by the Reserve Bank of New Zealand (RBNZ), with inflation easing and economic output remaining weak. .
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.
