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- The NZD/USD pair is retreating from a seven-week high of 0.6236, reached on Friday.
- The pair’s downside could be capped by rising chances of a Fed rate cut in September.
- “It is time to adjust policy,” Fed Chairman Jerome Powell said at the Jackson Hole symposium.
New Zealand Dollar/US Dollar The NZD/USD pair is trading at 0.6210 after retreating from a seven-month high of 0.6236 hit on Friday. However, the downside for the NZD/USD pair may be limited by dovish sentiment surrounding the US Federal Reserve regarding its policy outlook.
Federal Reserve Bank Chairman Jerome Powell “It’s time to adjust policy,” Powell said at the Jackson Hole symposium on Friday. While Powell did not specify when or how much the rate cut might begin, markets are expecting the U.S. central bank to announce a 25 basis point rate cut at its September meeting.
Additionally, Philadelphia Federal Reserve President Patrick Harker said on Friday that the U.S. central bank’s approach to adjusting interest rates should be “methodical,” indicating that policymakers are planning a series of rate cuts throughout the rest of 2024 as the U.S. central bank prepares for a dovish shift, according to Bloomberg.
However, the New Zealand dollar may face downward pressure as markets fully price in the additional 25bp cuts by the Reserve Bank of New Zealand in October and November. The RBNZ has already started its easing cycle, cutting the official cash rate to 5.25% in August.
Traders will likely be watching the ANZ-Roy Morgan Consumer Confidence Index for August and seasonally adjusted building permits data for July later this week, as these figures could provide fresh insights into economic activity in New Zealand.
Frequently Asked Questions About the New Zealand Dollar
The New Zealand Dollar (NZD), also known as the Kiwi, is a popular currency traded 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 unique idiosyncrasies that can also make the New Zealand Dollar move. The performance of the Chinese economy tends to move the Kiwi as China is New Zealand’s largest trading partner. Bad news for the Chinese economy is likely to mean lower New Zealand exports to the country, impacting the economy and thus its currency. Another factor that moves the New Zealand Dollar is dairy prices as the dairy industry is New Zealand’s main export. Higher dairy prices boost export income, which contributes positively to the economy and thus the New Zealand Dollar.
The Reserve Bank of New Zealand aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with a focus on keeping it close to the 2% midpoint. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will raise interest rates to cool the economy, but this move will also lead to higher bond yields, making it more attractive for investors to invest in the country and thus boosting the New Zealand dollar. Conversely, low interest rates tend to weaken the New Zealand dollar. The so-called spread, or how rates in New Zealand compare or are expected to compare to those set by the US Federal Reserve, can play a major role in moving the NZD/USD pair.
Macroeconomic data released in New Zealand is key to assessing the state of the economy and can influence the valuation of the New Zealand dollar. A strong economy, based on high economic growth, low unemployment and high confidence, is good for the New Zealand dollar. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to raise interest rates, if this economic strength is combined with high inflation. Conversely, if economic data is weak, the New Zealand dollar is likely to fall.
The New Zealand dollar tends to rise during periods of risk, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to create a more positive outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the New Zealand dollar tends to weaken during times of market turmoil or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.
