- The New Zealand dollar is correcting from 0.6030 in the middle of a stronger US dollar.
- The green ticket cuts losses with fears about a debt crisis in the US in sight.
- The market expectations of a dovish cut by the RBNZ are weighing on the Kiwi.
The New Zealand dollar failed to break the maximum of the year to date at 0.6030 and is quoting downward on Tuesday, affected by a somewhat stronger US dollar and market expectations that the RBNZ will further relax its monetary policy on Wednesday.
The dollar index is contributing up on Tuesday with US markets returning from a long weekend and investors relieved by Trump’s decision to delay the deadline for a commercial agreement with the EU until July 9.
tariff
The US president retracted his threat to impose 50% tariffs on all EU imports, which would have cut the perspectives of global growth. The US commercial activity and the Eurozone represents 30% of global trade and 43% of global GDP.
However, the dollar recovery could have short duration, since concerns about the growing indebtedness of the US are in sight. The US Senate will discuss a draft tax cuts bill that is expected to increase the debt of 36.2 billion dollars at 3.8 billion dollars over the next ten years. This fed a gradual sale of US assets during the previous week.
Later today, orders for US durable goods and the consumer’s feeling index of the Board Conference will provide more information on the impact of Trump’s tariff turbulence on the US economy. These figures will probably establish the USD address before the FOMC minutes and the key figures of the Personal Consumption Expenditure Index (PCE), which will be published later this week.
In New Zealand, the RBNZ is expected to cut the rates at 25 basic points up to 3.25% on Wednesday, and investors prepare for a dovish tone statement. The bank could point out greater monetary relaxation, citing the potential impact of the uncertain commercial scenario. This would add pressure on the Kiwi.
RBNZ FAQS
The New Zealand Reserve Bank (RBNZ) is the Central Bank of the country. Its economic objectives are to achieve and maintain the stability of prices – won when inflation, measured by the consumer price index (CPI), falls within the range of between 1% and 3% – and support the maximum sustainable employment.
The Monetary Policy Committee (MPC) of the New Zealand Reserve Bank (RBNZ) decides the appropriate level of the official cash rate (OCR) according to its objectives. When inflation is above the objective, the bank will try to control it by raising its key, making money borrowing for homes and companies and cooling the economy. The highest interest rates are generally positive for the New Zealand dollar (NZD), since they generate greater returns, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the NZD.
Employment is important for the New Zealand Reserve Bank (RBNZ) because an adjusted labor market can feed inflation. The objective of the “maximum sustainable employment” is defined as the greatest use of labor resources that can be maintained over time without creating an acceleration of inflation. “When employment is at its sustainable maximum level, there will be low and stable inflation. However, if employment is above the sustainable maximum level for too long, it will eventually cause prices to increase more and more quickly, which will require the MPC to increase interest rates to maintain inflation under control,” says the Central Bank.
In extreme situations, the New Zealand Reserve Bank (RBNZ) can implement a monetary policy tool called quantitative flexibility. The QE is the process by which the RBNZ prints local currency and uses it to buy assets (generally government or corporate bonds) of banks and other financial institutions with the objective of increasing the internal money supply and stimulating economic activity. The qe generally results in a neo -Zealand dollar (NZD) weaker. The QE is a last resort when it is unlikely that simply lowering interest rates achieve the objectives of the Central Bank. The RBNZ used it during the Covid-19 Pandemia.
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.
