- NZD/USD is down 0.10% on the day at 0.6080 in early Asian trading on Thursday.
- Fed officials said the central bank is ‘closer’ to cutting interest rates.
- Softer New Zealand CPI inflation data triggered rate cut bets by the RBNZ this year.
Fed Governor Christopher Waller said Wednesday that the U.S. central bank is “closer” to an interest rate cut as the improved trajectory of inflation and the labor market are in better balance. Thomas Barkin, president of the Richmond Fed, said he is “very encouraged” that the decline in inflation has begun to broaden and would like to see it continue.
Earlier this week, Fed Chair Jerome Powell said on Monday that the US central bank will not wait until inflation hits 2% to cut interest rates. The dovish comments from Fed officials could weigh on the Dollar and act as a tailwind for NZD/USD for the time being.
In terms of U.S. economic data, building permits rose 3.4% to 1.446 million in June from 1.3999 million in May, while housing starts for the same period rose 3.0% to 1.353 million from 1.314 million. U.S. industrial production rose 0.6% month-on-month in June from the previous reading of 1.0%, beating the estimate for a 0.3% increase.
New Zealand’s Consumer Price Index (CPI) inflation fell more than expected in the second quarter, prompting expectations that the Reserve Bank of New Zealand would cut interest rates this year. The RBNZ signaled at its July meeting that a decision on rate cuts would depend on the decline in inflation. The country’s CPI rose 0.4% quarter-on-quarter in the second quarter, compared with 0.6% in the first quarter, and was below analysts’ forecasts of 0.6%. The annual rate of CPI inflation fell to its lowest level in three years, coming in at 3.3% annually in the second quarter from a rise of 4% in the 12 months to the first quarter of 2024.
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.
