- NZD/USD could face challenges due to subdued sentiment around the RBNZ’s monetary policy outlook.
- New Zealand’s monthly trade balance reported a deficit of $2.1 billion in September, down from a previous deficit of $2.3 billion.
- The US Dollar gains support from rising risk aversion as concerns grow over a possible resurgence of US inflation.
NZD/USD recovers some of its recent losses, trading around 0.6040 during the Asian session on Tuesday. However, the New Zealand Dollar (NZD) faces pressure as the likelihood of further rate cuts in November by the Reserve Bank of New Zealand (RBNZ) increases, with inflation easing and economic output remaining weak.
In September, New Zealand’s monthly trade balance showed a deficit of $2.1 billion, with exports increasing by $246 million (5.2%) to $5.0 billion, while imports declined by 67 million dollars (0.9%) to 7.1 billion.
The NZD may have found some support following China’s rate cuts on Monday. As New Zealand’s largest trading partner, China’s decision to reduce its 1-year lending prime rate (LPR) from 3.35% to 3.10% and its 5-year LPR from 3.85% to 3, 60% could stimulate domestic economic activity, potentially increasing demand for New Zealand exports.
The US Dollar (USD) gained support following a rise in US Treasury yields, which rose more than 2% on Monday. At the time of writing, the 2-year and 10-year US Treasury yields stand at 4.02% and 4.18%, respectively. This increase was driven by signs of economic resilience and growing concerns about a possible resurgence of inflation in the United States, reinforcing expectations for tighter monetary policy.
Recent economic data dispelled the likelihood of a significant rate cut by the Federal Reserve (Fed) in November. According to the CME FedWatch tool, the probability of a 25 basis point rate cut in November is 89.1%, with no expectation of a cut larger than 50 basis points.
Federal Reserve Bank of Minneapolis President Neel Kashkari noted Monday that the Fed is closely monitoring the U.S. labor market for signs of rapid destabilization. Kashkari warned investors to anticipate a gradual pace of rate cuts in the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.
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.
