- NZD/USD could face headwinds as the recent moderation in inflation strengthens the case for an RBNZ rate cut in November.
- The New Zealand Consumer Price Index rose 2.2% year-on-year in the September quarter, bringing inflation within the RBNZ’s target range of 1-3%.
- The US dollar appreciates as strong US jobs and inflation data have diminished the odds of aggressive Fed rate cuts.
NZD/USD breaks its three-day losing streak, trading around 0.6070 during Asian hours on Thursday. However, upside for the AUD/USD pair could be limited by recent data showing inflation in New Zealand has slowed to its lowest level in more than three years. This has increased the likelihood that the Reserve Bank of New Zealand (RBNZ) will cut interest rates at its next monetary policy meeting in November.
The New Zealand Consumer Price Index (CPI) rose 2.2% year-on-year in the September quarter, down from the 3.3% annual increase in the previous quarter. “For the first time since March 2021, annual inflation is within the Reserve Bank of New Zealand’s (RBNZ) 1% to 3% target range. Prices continue to rise but at a slower pace than before,” he said. Nicola Growden, consumer prices manager at Stats NZ.
Market participants are likely to remain cautious ahead of key economic data from China, New Zealand’s main trading partner, scheduled for release on Friday. This includes GDP and retail sales data, following the recent disappointment in China’s CPI and PPI numbers.
The New Zealand Dollar (NZD) faced challenges as China’s recently announced fiscal stimulus plan did little to lift market sentiment as investors remain uncertain about the scale and impact of the package.
The US Dollar (USD) found support in strong jobs and inflation data, which has tempered expectations for aggressive easing by the Federal Reserve (Fed). According to the CME FedWatch tool, there is currently a 92.1% chance of a 25 basis point rate cut in November, with no expectation of a reduction greater than 50 basis points.
Traders are eagerly awaiting US retail sales data, which will be released later in the American session. Monthly consumer spending is expected to rise 0.3% in September, up from 0.1% in the previous reading.
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.
