- NZD/USD extends gains following PBoC interest rate decision on Friday.
- The PBoC maintains its one-year and five-year Lending Prime Rates (LPR) at 3.35% and 3.85%, respectively.
- The US Dollar struggles amid rising expectations of further Federal Reserve rate cuts in 2024.
NZD/USD continues its winning streak for the third consecutive day, trading around 0.6250 during early European hours on Friday. The New Zealand Dollar (NZD) gains ground following the People’s Bank of China (PBoC) interest rate decision.
The PBoC opted to keep its one-year and five-year Lending Prime Rates (LPR) unchanged at 3.35% and 3.85%, respectively. As close trading partners, any developments in the Chinese economy can significantly impact New Zealand markets.
In New Zealand, recent data showed that Gross Domestic Product (GDP) contracted by 0.2% quarter-on-quarter in the second quarter, bringing the economy closer to recession. This decline was smaller than anticipated, which was a contraction of 0.4%. Year-on-year, the economy contracted by 0.5%, as expected. Markets have already fully priced in another 25 basis point rate cut in October.
The US dollar remains under pressure as expectations grow for additional rate cuts by the US Federal Reserve by the end of 2024. The latest dot plot projections indicate a gradual easing cycle, with the median rate for 2024 revised down to 4.375% from the June forecast of 5.125%.
U.S. Treasury Secretary Janet Yellen said on Friday that the Federal Reserve’s recent interest rate cut is a very positive indicator for the U.S. economy. According to Yellen, this demonstrates the Fed’s confidence that inflation has significantly decreased and is moving toward the 2% target. Meanwhile, the labor market continues to show strength.
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.
