- NZD/USD rises to around 0.6285 in the early Asian session on Wednesday.
- The US ISM Manufacturing PMI was worse than expected in September.
- The RBNZ is expected to reduce its cash rate by 50 basis points.
The NZD/USD pair gains strength near 0.6285 despite the firmness of the US Dollar (USD). However, caution in the market amid rising tension in the Middle East could boost the dollar. Investors will be watching the US ADP employment change and Fed statements.
Worse-than-expected US economic data limits the rise of the Dollar. The ISM Manufacturing PMI for September was steady at 47.2 in September, unchanged from the previous reading but below estimates of 47.5. This figure was below the 50% threshold for the sixth consecutive month.
Iran launched more than 200 ballistic missiles at Israel and Prime Minister Benjamin Netanyahu vowed retaliation against Iran for Tuesday’s missile attack, but Tehran warned that any response would result in “massive destruction”, fueling fears of a wider war. Rising geopolitical risks could support the safe-haven US dollar (USD).
On the New Zealand front, HSBC analysts expect more aggressive interest rate cuts by the Reserve Bank of New Zealand (RBNZ) in the coming months due to signs of a slowing economy. The bank anticipates the RBNZ will cut its cash rate by 50 basis points (bps) in both October and November, a change from its previous prediction of 25 basis point cuts in each of the two months. This, in turn, could limit the Kiwi’s upside in the short term.
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.
