- NZD/USD extends its rally around 0.6250 in early Asian session on Wednesday.
- Firmer bets on Fed rate cuts continue to undermine the US dollar ahead of key US data.
- The RBNZ is open to faster rate cuts, which could drag the Kiwi lower against the USD.
The NZD/USD pair is trading on a weaker note near 0.6245 after retreating from eight-month highs during the early Asian session on Wednesday. However, the pair’s downside is likely to be limited due to the weakness of the US Dollar (USD) after the Federal Reserve (Fed) signaled the next rate cut this year. Fed’s Christopher Waller and Raphael Bostic are scheduled to speak later on Wednesday.
The prospect of further US interest rate cuts could continue to put some selling pressure on the dollar. Rate futures markets have priced in a nearly 34.5% chance of the Fed cutting rates by 50 basis points (bps) in September, with 100 bps of Fed easing expected this year.
Data released by the Conference Board on Tuesday revealed that the US Consumer Confidence Index rose to 103.3 in August from an upwardly revised 101.9 in July. This figure improved to a six-month high amid optimism about the economic outlook. However, concerns about the labor market persist after the Unemployment Rate rose to near a three-year high of 4.3% last month.
Investors are looking for fresh drivers from US economic data this week. The preliminary estimate of US Gross Domestic Product (GDP) for the second quarter (Q2) and the Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, will be released on Thursday and Friday, respectively.
Following a surprise rate cut by the Reserve Bank of New Zealand (RBNZ) at its August meeting, there is speculation among policy committee members to accelerate further cuts if economic data suggests increasing downside risks to activity and inflation. Traders expect the New Zealand central bank to cut rates by 25 bps in October and November. This, in turn, could weigh on the New Zealand Dollar (NZD) and limit the pair’s upside.
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.
