- NZD/USD sees further declines as soft NZ inflation has driven dovish RBNZ expectations.
- The US dollar refreshes a two-month high as the Fed is expected to cut interest rates gradually.
- NZD/USD falls below the 200-day EMA.
The NZD/USD pair finds some buying interest after hitting a new near two-month low near 0.6040 on Wednesday. The near-term outlook for the New Zealand pair remains vulnerable as the New Zealand (NZ) third-quarter Consumer Price Index (CPI) slowed as expected.
The annualized CPI rose 2.2%, as expected, slower than the 3.3% in the similar quarter a year earlier. Quarterly inflation grew at a slower pace of 0.6% from estimates of 0.7%, however, the pace was higher than 0.4% in the second quarter of the year.
Soft inflation data has boosted expectations that the Reserve Bank of New Zealand (RBNZ) could cut its Official Cash Rate (OCR) by a larger-than-usual 50 basis points (bps) for the second time in a row .
Meanwhile, the US dollar (USD) hits a new two-month high as traders have dismissed expectations that the Federal Reserve (Fed) would follow through with a significant interest rate cut in November. According to CME’s FedWatch tool, the Fed will cut its key interest rates by 25 bps at each of the two remaining meetings this year.
NZD/USD weakens after breaking below horizontal support drawn from the September 11 low of 0.6100 on a daily time frame. The overall trend of the New Zealand pair has turned bearish as it has formed a lower swing low. The asset is also trading below the 200-day Exponential Moving Average (EMA), which is trading around 0.6100.
The 14-day Relative Strength Index (RSI) falls below 40.00, suggesting bearish momentum has been triggered.
Further declines towards the psychological support of 0.6000 and the August 15 low of 0.5974 are very likely.
On the other hand, a reversal move above the October 8 high of 0.6146 will push the asset towards the 50-day EMA at 0.6173 and the October 4 high near 0.6220.
NZD/USD daily chart
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.
