- NZD/USD is trading with slight gains near 0.6260 in the Asian session on Thursday.
- Fed’s Kugler said he strongly supported a half-point rate cut.
- Chinese rate cuts and new stimulus measures support the Kiwi.
The NZD/USD pair is trading with a mild positive bias around 0.6260 on Thursday during Asian trading hours. The pair’s rally is boosted by China’s fresh stimulus plans and the overall weakening of the US Dollar (USD). The final annualized US Gross Domestic Product (GDP) for the second quarter (Q2) and Federal Reserve (Fed) Chair Jerome Powell’s speech will be the highlights of Thursday.
Rising expectations for a deeper rate cut by the Fed in November are weighing on the dollar. Meanwhile, the US Dollar Index (DXY), which tracks the value of the USD against six major currencies, is down at 100.85. Federal Reserve Governor Adriana Kugler said on Wednesday that she will support additional rate cuts in the future, adding that the Fed should maintain focus on reducing inflation and also turn attention to maximum employment. Markets have priced in a nearly 57.4% chance of a second 50-basis-point rate cut at the November meeting, while the probability of a 25-basis-point cut stands at 42.6%, according to the CME FedWatch tool.
Final US Q2 GDP data is due later in the day, and is projected to expand by 3.0%. On Friday, the focus will be on the Personal Consumption Expenditure (PCE) Price Index, which could be read by the Fed and offer some clues on the path of US inflation. The headline PCE is expected to show a 2.3% year-over-year increase in August, while the core PCE is forecast to rise by 2.7%.
As for the Kiwi, the People’s Bank of China (PBOC) unleashed a series of stimulus measures, including cuts to its benchmark interest rate and lowering the reserve requirement ratio (RRR). This, in turn, boosts the New Zealand Dollar (NZD) as a proxy for China, as China is New Zealand’s largest export partner. However, caution ahead of key US data or safe-haven flows amid ongoing geopolitical risks could support the Dollar and limit the pair’s upside.
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.
