- The NZD/USD is negotiated well within a limited range around 0.6050 while investors seek the minutes of the meeting between the US and China.
- The US inflation is expected to have grown at a faster rate in May.
- Investors are looking for clues on whether the RBNZ will reduce interest rates again at the July policy meeting.
The NZD/USD is consolidated in a narrow range around 0.6050 during the European negotiation hours on Tuesday. The Kiwi pair moves laterally while investors remain on the margin waiting for the result of commercial conversations between the United States (USA) and China, which began on Monday in London.
The American dollar index (DXY), which tracks the value of the green ticket against six main currencies, is calmly negotiated around 99.00. Meanwhile, S&P 500 futures exhibit slow performance during European negotiation hours, indicating a cautious mood in the market.
Although the White House has pointed out that negotiations will pass without problems and Washington will get access to rare earth minerals in large quantities, investors refrain from buying optimism while waiting for a specific advance.
This week, US Consumer Price Index (CPI) for May will also be the key trigger for the next movement in the US dollar, which will be published on Wednesday. The IPC report is expected to show that inflationary pressures grew at a faster rate. Such scenario would limit the Federal Reserve (Fed) to reduce interest rates.
Meanwhile, the New Zealand dollar (NZD) is also exhibiting side yield amid the commercial conversations between the US and China. The impact of the result of commercial conversations between the US and China is expected to be significant for the Kiwi dollar, given that the New Zealand economy (NZ) depends largely on its exports to China.
In the domestic sphere, investors seek clues about whether the New Zealand Reserve Bank (RBNZ) will cut the interest rates in the policy meeting next month. At the May policy meeting, the RBNZ cut its official cash (OCR) rate at 25 basic points (PB) up to 3.25%.
The RBNZ guided that the monetary expansion cycle will be deeper than they had previously anticipated, citing global economic risks and that inflation is within the bank’s goal.
US dollar FAQS
The US dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation along with local tickets. According to data from 2022, it is the most negotiated currency in the world, with more than 88% of all global currency change operations, which is equivalent to an average of 6.6 billion dollars in daily transactions. After World War II, the USD took over the pound sterling as a world reserve currency.
The most important individual factor that influences the value of the US dollar is monetary policy, which is determined by the Federal Reserve (FED). The Fed has two mandates: to achieve price stability (control inflation) and promote full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% objective set by the Fed, it rises the types, which favors the price of the dollar. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and promulgate quantitative flexibility (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is an unconventional policy measure that is used when the credit has been exhausted because banks do not lend each other (for fear of the default of the counterparts). It is the last resort when it is unlikely that a simple decrease in interest rates will achieve the necessary result. It was the weapon chosen by the Fed to combat the contraction of the credit that occurred during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy bonds of the US government, mainly of financial institutions. Which usually leads to a weakening of the US dollar.
The quantitative hardening (QT) is the reverse process for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the wallet values ​​that overcome in new purchases. It is usually positive for the US dollar.
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.
