New Zealand Dollar gathers strength on weaker US Dollar, positive risk sentiment
|- The New Zealand Dollar trades on a stronger note in Friday’s Asian session.
- The improved risk sentiment supports the Kiwi, while RBNZ’s dovish stance might cap the upside.
- Investors await the preliminary US Michigan Consumer Sentiment Index for August, which is due on Friday.
The New Zealand Dollar (NZD) recovers on the decline of the Greenback and improved risk sentiment, snapping the two-day losing streak on Friday. However, the upside of the Kiwi might be limited due to the dovish stance of the Reserve Bank of New Zealand (RBNZ) after a surprise rate cut on Wednesday. Furthermore, the cautious mood amid the elevated geopolitical risks in the Middle East might weigh on riskier assets like the NZD.
On the other hand, the expectation of a Federal Reserve (Fed) interest rate cut in September might undermine the USD and create a tailwind for NZD/USD. The market is now fully priced for a 25 basis points (bps) Fed rate cut in September and nearly 20% priced for a 50 bps cut. Traders will take more cues from the Fed's Austan Goolsbee speech later on Friday. Also, the preliminary US Michigan Consumer Sentiment Index for August, Building Permits and Housing Starts will be released.
Daily Digest Market Movers: New Zealand Dollar rebounds despite dovish RBNZ
- RBNZ Governor Adrian Orr stated on Friday that committee has achieved a very strong level of confidence that low and stable inflation is back within 1-3 % range. “I want to see inflation expectations, pricing intentions continue to remain anchored.” Orr added.
- RBNZ Assistant Governor Karen Silk said on Friday that the central bank is taking a measured approach to rate cuts. She further stated that the behavior of price inflation is crucial for the cash rate path ahead.
- New Zealand’s Business NZ Performance of Manufacturing Index (PMI) improved to 44.0 in July from the previous reading of 41.1.
- China’s Retail Sales rose by 2.7% YoY in July, compared to 2.0% seen in June, beating market expectations. Industrial Production came in at 5.1% YoY in July versus 5.3% prior, weaker than the estimation of 5.2%.
- The US Retail Sales climbed by 1.0% MoM in July, compared to a decline of 0.2% in June, the US Census Bureau reported on Thursday. This figure surpassed the estimation of a 0.3% increase.
- The Initial Jobless Claims for the week ending August 10 increased by 227K, better than the expectation of 235K and down from the previous week of 234K.
- US Industrial Production came in at -0.6% in July versus 0.3 prior, weaker than the 0.3% expected.
- St. Louis Fed President Alberto Musalem said on Thursday that the time is coming closer for the Fed to consider cutting its interest rate, per Reuters.
Technical Analysis: New Zealand Dollar continues bearish tone in the longer term
The New Zealand Dollar trades firmer on the day. The NZD/USD pair maintains a negative outlook on the daily timeframe as the pair holds below the key 100-day Exponential Moving Average (EMA) and the tested descending trendline. Additionally, the 14-day Relative Strength Index (RSI) points lower below the 50-midline, supporting a continuation of the downtrend.
The significant resistance level to watch is near 0.6050, the key 100-day EMA and the descending trendline. Sustained upside momentum past this level could lift the pair all the way up to 0.6070, the upper boundary of the Bollinger Band. The next hurdle is located at 0.6154, the high of July 8.
On the flip side, the next downside target emerges at 0.5930, the low of August 2. Extended losses could clear the way for a move to 0.5860, the lower limit of the Bollinger Band and the low of July 29.
(This story was corrected on August 16 at 01:45 GMT to say in the title, that investors await the preliminary US Michigan Consumer Sentiment Index for August, which is due on Friday, not the RBNZ Governor Orr's speech.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.60% | -0.97% | -0.08% | -0.50% | 0.80% | -0.10% | 0.49% | |
| EUR | 0.60% | -0.37% | 0.52% | 0.09% | 1.42% | 0.52% | 1.09% | |
| GBP | 0.97% | 0.38% | 0.89% | 0.47% | 1.78% | 0.89% | 1.47% | |
| CAD | 0.08% | -0.52% | -0.90% | -0.43% | 0.91% | 0.00% | 0.57% | |
| AUD | 0.49% | -0.11% | -0.48% | 0.42% | 1.30% | 0.40% | 0.98% | |
| JPY | -0.83% | -1.44% | -1.82% | -0.92% | -1.35% | -0.90% | -0.32% | |
| NZD | 0.09% | -0.51% | -0.88% | 0.02% | -0.40% | 0.90% | 0.59% | |
| CHF | -0.49% | -1.10% | -1.49% | -0.58% | -1.00% | 0.32% | -0.58% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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