- NZD/USD trades with a bearish bias near 0.5890 in the early Asian session on Tuesday.
- Markets reduced expectations of future rate cuts by the US Fed.
- ANZ analysts forecast a 50bp rate cut by the RBNZ at its November meeting next week.
The NZD/USD pair trades with slight losses around 0.5890 during the early Asian session on Tuesday. The pair falls amid the consolidation of the Dollar. Later on Tuesday, investors will be watching US building permits and housing starts for October.
The US Dollar Index (DXY), which measures the USD against a basket of currencies, retreats from a one-year high above 107.00 to near 106.20. However, the dollar’s downside could be limited as investors expect the incoming Trump administration to focus on cutting taxes and raising tariffs, which could stoke inflation and slow the path of rate cuts by the Fed. Federal (Fed).
Boston Fed President Susan Collins said Friday that rate cuts could be paused as soon as the December meeting, but it depends on upcoming data on jobs and inflation. According to the CME’s FedWatch tool, markets have priced in a nearly 58.7% probability of a 25 basis point (bp) rate cut by the Fed at the December meeting.
On the New Zealand front, growing expectations of significant interest rate cuts by the Reserve Bank of New Zealand (RBNZ) next week weigh on the New Zealand Dollar (NZD). ANZ analysts forecast a 50 basis point (bp) cut by the RBNZ on November 27. “We expect a 50bp cut to 4.25% next week. That would be consistent with the RBNZ’s October message, economists’ forecasts and market valuation. Data since the October Monetary Policy Review has been mixed, but it doesn’t look like any data is going to alter the outlook,” ANZ analysts noted.
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.
