- NZD/USD rises to around 0.6095 in the early Asian session on Friday.
- US CPI inflation was higher than expected in September, while jobless claims rose unexpectedly.
- The RBNZ’s dovish stance could limit the pair’s upside.
The NZD/USD pair remains in positive territory around 0.6095 during the early Asian session on Friday. However, the pair’s rise could be limited as firmer September inflation in the US reduces the chances of aggressive cuts by the US Federal Reserve (Fed), boosting the Dollar. Investors are awaiting Michigan Producer Price Index (PPI) data and the preliminary consumer sentiment index, which will be released later on Friday.
Inflation in the US surprised to the upside in September, with the Consumer Price Index (CPI) rising 2.4% year-on-year in September, compared to 2.5% the previous month. Meanwhile, the core CPI, excluding food and energy, rose 3.3% year-on-year in September versus 3.2% previously, higher than the 3.2% expected. The higher-than-expected inflation report could boost the dollar and limit the rise of NZD/USD.
The small upside surprise in September price growth likely won’t stop the Fed from making additional interest rate cuts this year, but the odds of a 50 basis point (bp) reduction fell significantly after the strong Payrolls report. Non-US Agricultural Reports for September last week. Markets now price in a nearly 83.3% probability of 25 basis point (bp) rate cuts from the Fed in November, according to the CME’s FedWatch tool.
New York Fed President John Williams said Thursday that he expects more rate cuts ahead as inflationary pressures continue to moderate and the economy remains strong. Meanwhile, Chicago Fed President Austan Goolsbee signaled that he sees a series of rate cuts over the next year to year and a half, noting that inflation is now near the Fed’s 2% target, the economy is almost at full employment, and the Fed’s goal is to maintain those conditions.
However, Atlanta Fed President Raphael Bostic is open to the idea of skipping a rate cut in November if economic data has not yet aligned with the Fed’s target numbers in time.
On the New Zealand front, the Reserve Bank of New Zealand’s (RBNZ) dovish stance could limit the pair’s upside in the short term. Markets are betting on more aggressive easing in November. The swaps imply there will be a further 45bp easing at the RBNZ November meeting. However, positive developments around the Chinese economy could boost the New Zealand Dollar (NZD) as a proxy for China, as China is a major trading partner of New Zealand.
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.
