- NZD/USD declines as US Dollar draws support from decreasing likelihood of further rate cuts by the Fed.
- The Fed’s Kashkari reiterated the central bank’s data-dependent approach, highlighting continued easing inflationary pressures alongside a strong labor market.
- The New Zealand Consumer Price Index is anticipated to return to the central bank’s 1-3% target range for the September quarter.
NZD/USD halts its three-day winning streak, trading around 0.6080 during Asian hours on Tuesday. This drop could be attributed to the strength of the US Dollar (USD), which draws support from declining expectations that the US Federal Reserve (Fed) will implement aggressive interest rate cuts following a strong jobs report and concerns about persistent inflation in the US
The US Dollar Index (DXY), which measures the value of the US dollar against its six other major peers, extends its winning streak for the sixth consecutive day on Tuesday. The DXY is trading around 103.30 with the 2-year and 10-year yields sitting at 3.96% and 4.09%, respectively, at the time of writing.
On Monday, Minneapolis Federal Reserve Bank President Neel Kashkari reaffirmed the Fed’s data-dependent approach. Kashkari reiterated the familiar views of Fed policymakers on the strength of the US economy, pointing to continued easing inflationary pressures and a robust labor market, despite a recent rise in the overall unemployment rate, according to Reuters.
The New Zealand Dollar (NZD) weakened following Monday’s disappointing trade balance data from China, New Zealand’s largest trading partner. Furthermore, despite the announcement of China’s fiscal stimulus plan over the weekend, the New Zealand Dollar failed to gain traction as investors remained uncertain about the scope of the package.
China’s trade surplus narrowed in September, with the trade balance recorded at 81.7 billion, below the expected 89.8 billion and the previous 91.02 billion. Exports increased 2.4% year-on-year, significantly below the anticipated 6.0% and 8.7% in the previous period. Meanwhile, imports grew 0.3%, below the expected 0.9% and the previous increase of 0.5%.
Investors are likely anticipating the release of New Zealand’s third-quarter inflation data on Wednesday. The Consumer Price Index (CPI) is expected to return to the central bank’s 1-3% target range, declining to 2.2% year-on-year for the September quarter from the previous reading of 3.3%.
The New Zealand Dollar is under downward pressure as markets anticipate an 80% chance that the Reserve Bank of New Zealand (RBNZ) will execute another half-point rate cut at its last meeting of the year in November.
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.
