- NZD/USD gains ground near 0.6190 in early Asian session on Wednesday.
- The Fed is expected to cut its borrowing costs on Wednesday.
- New Zealand’s GDP is due out on Thursday and is projected to contract 0.4% quarter-on-quarter in the second quarter.
The NZD/USD pair is attracting some buyers around 0.6190 on Wednesday during the early Asian session. Resumption of US Dollar (USD) weakness amid firmer bets of a Federal Reserve (Fed) rate cut is providing some support to the pair. Investors will closely watch the Fed’s interest rate decision on Wednesday.
The Fed is likely to cut interest rates at its September meeting on Wednesday after holding the rate steady within a target of 5.25% and 5.5% from July 2023. Fed Chairman Jerome Powell said at Jackson Hole: “The time has come to tighten policy.” He further stated that “the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Fed officials will also release a Summary of Economic Projections, or “dot plot,” after the policy meeting, which could give an idea of how much the U.S. central bank plans to cut over the next year. The expectation of significant rate cuts could put some selling pressure on the dollar in the near term.
On the Kiwi front, a gloomy outlook on the Chinese economy following disappointing economic data could limit the upside of China’s proxy New Zealand Dollar (NZD). Investors will take further cues from New Zealand’s Gross Domestic Product (GDP) for the second quarter (Q2), due out on Thursday. GDP is estimated to contract 0.4% q/q in Q2, after a 0.2% expansion in Q1. However, an upside surprise in the GDP reading could boost the NZD against the USD.
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 policies of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. Developments in the Chinese economy tend to move the Kiwi because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely translate into fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor that moves the NZD is dairy 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 push up bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate spread, or how 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.
Macroeconomic data releases in New Zealand are 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 can 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 that overall market risks are low and are optimistic about growth. This often translates into a more favourable 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.
