- NZD/USD rebounds from a three-month low of 0.5857 hit on Monday.
- The US Dollar may struggle due to dovish sentiment surrounding the Fed policy decision.
- The New Zealand dollar faced challenges due to disappointing economic prospects in China.
NZD/USD is trading higher around 0.5900 during early European hours on Tuesday. The New Zealand Dollar (NZD) rebounded against the US Dollar (USD) after hitting a three-month low of 0.5857 on Monday.
The NZD/USD pair could appreciate further as the US Federal Reserve (Fed) is expected to keep rates unchanged on Wednesday. However, traders anticipate a Fed rate cut in September, with the CME’s FedWatch tool indicating a 100% probability of at least a quarter-percentage point cut.
In addition, signs of cooling inflation and easing labor market conditions in the United States have fueled expectations of three rate cuts by the Fed this year. However, last week, Bank of America indicated that strong economic growth in the United States allows the Federal Open Market Committee (FOMC) to “afford to wait” before making any changes. The bank says the economy “remains on solid footing” and continues to expect the Fed to begin cutting rates in December.
Traders are also anticipating key U.S. data this week. Nonfarm Payrolls are expected to rise by 175,000 jobs in July, down from 206,000 in June. The unemployment rate is projected to remain steady at 4.1%, matching 2021 highs. Additionally, average hourly earnings are forecast to rise 0.3% month-on-month.
On the New Zealand front, disappointing GDP figures in China and an unexpected rate cut by the People’s Bank of China (PBoC) last week have added further selling pressure on the New Zealand Dollar (NZD), as New Zealand and China are close trading partners. Any changes in the Chinese economy could impact the New Zealand market.
However, rising bets on an early rate cut by the Reserve Bank of New Zealand (RBNZ) next week continue to weigh on the New Zealand dollar. Markets are pricing in a 44% chance of a rate cut at the central bank’s August meeting.
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.
