- NZD/USD gains traction to around 0.5860 in the Asian session on Monday, up 0.55% on the day.
- The RBNZ is likely to cut the OCR by 50bp on Wednesday, taking the rate to 4.25%.
- The Fed’s cautious stance could support the USD.
The NZD/USD pair gains strength to near 0.5860 on Monday during Asian trading hours, boosted by the weaker US Dollar (USD). All eyes will be on the Reserve Bank of New Zealand’s (RBNZ) interest rate decision on Wednesday.
Data released by Statistics New Zealand on Monday showed the country’s retail sales fell 0.1% quarter-on-quarter in the third quarter (Q3), compared to the previous reading of a 1.2% drop. Retail sales fell for a second straight quarter as high interest rates dented consumer sentiment, adding to signs the economy was in recession at midyear.
Additionally, investors expect aggressive interest rate cuts from the RBNZ, which could put some selling pressure on the Kiwi. The swaps market is pricing in a 50 basis point (bp) cut on Wednesday, with some seeing a small chance of a 75 bp reduction.
Meanwhile, the US Dollar Index (DXY), which measures the USD against a basket of currencies, is currently trading near 106.85, down 0.62% on the day. The weaker Dollar acts as a tailwind for the NZD/USD pair.
However, the cautious stance of the Federal Reserve (Fed) could limit the decline of the USD. Fed Governor Michelle Bowman said last week that the Fed’s progress toward 2% inflation has “stalled” and that the U.S. central bank should proceed “cautiously” in cutting rates. of interest. Additionally, Chicago Fed President Austan Goolsbee noted that it might make sense to slow the pace of rate cuts as the Fed gets closer to where rates will be set.
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.
