New Zealand Dollar remains firmer ahead RBNZ rate decision, geopolitical risks might cap the upside
|- The New Zealand Dollar gains traction in Monday’s early European session.
- Diminishing odds of an RBNZ rate cut and hotter Chinese inflation data underpin the Kiwi.
- The RBNZ monetary policy meeting will take center stage on Wednesday.
The New Zealand Dollar (NZD) gathers strength above the 0.6000 psychological level on Monday. The Kiwi gains traction as markets trimmed bets on a rate cut by the Reserve Bank of New Zealand (RBNZ) at its August meeting on Wednesday after the stronger-than-expected employment report. Furthermore, the hotter Chinese July Consumer Price Index (CPI) supports the China-proxy NZD as China is New Zealand's largest trading partner.
Nonetheless, the heightened volatility and elevated geopolitical risks in the Middle East might exert some selling pressure on riskier assets like the Kiwi and cap the pair’s upside. Traders await the RBNZ interest rate decision on Wednesday for fresh catalysts. On the US docket, the Producer Price Index (PPI), Consumer Price Index (CPI) and Retail Sales will be released on Tuesday, Wednesday and Thursday, respectively.
Daily Digest Market Movers: New Zealand Dollar trades stronger as traders trimmed bets on RBNZ rate cut
- 12 of 21 economists surveyed by Bloomberg expect the New Zealand central bank to keep the OCR at 5.5% on Wednesday.
- The NZIER Shadow Board is split on whether the Reserve Bank of New Zealand (RBNZ) should lower the Official Cash Rate (OCR) in its forthcoming August Monetary Policy Statement.
- Over half of the Shadow Board members expect a 25 bps reduction in the OCR is required due to the persistent weakening of the New Zealand economy. The other members suggested that the Reserve Bank should keep the OCR at 5.50%.
- China’s CPI climbed 0.5% year-on-year in July, compared to a 0.2% increase in June, hotter than the expectations of a 0.3% rise, the National Bureau of Statistics of China reported on Friday. On a monthly basis, Chinese CPI inflation arrived at 0.5% MoM in July versus -0.2% prior, above the consensus of 0.3%.
- Fed Governor Michelle Bowman stated on Sunday that she still sees upside risks for inflation and continued strength in the labor market, highlighting the Fed may not be ready to cut rates at its upcoming meeting in September, per Reuters.
- Traders have priced in nearly 52.5% odds that the Fed will cut the rate by 50 basis points (bps) in the September meeting, down from 57.5% last week, according to the CME FedWatch Tool.
Technical Analysis: New Zealand Dollar remains bearish in the longer term
The New Zealand Dollar edges higher on the day. However, the NZD/USD pair keeps the bearish vibe on the daily timeframe, characterized by the price remaining below the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) stands in the neutral territory, hovering around the 50 midline. This suggests that the price might face consolidation before making a decisive move.
In the bullish scenario, the 100-period EMA near 0.6050 acts as an immediate resistance level for NZD/USD. Further north, this may pave the way for a move towards 0.6080, the upper boundary of the Bollinger Band. The additional upside filter to watch is 0.6134, a high of July 9.
If sellers regain control, we could see a pullback towards 0.5912, a low of August 6. Sustained trading below the mentioned level could drag the pair to 0.5856, a low of July 29 and the lower limit of the Bollinger Band.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.06% | -0.13% | -0.04% | -0.18% | 0.08% | -0.29% | 0.22% | |
| EUR | 0.06% | -0.06% | 0.02% | -0.11% | 0.15% | -0.22% | 0.28% | |
| GBP | 0.12% | 0.06% | 0.08% | -0.04% | 0.21% | -0.17% | 0.33% | |
| CAD | 0.04% | -0.02% | -0.08% | -0.13% | 0.13% | -0.26% | 0.26% | |
| AUD | 0.19% | 0.11% | 0.05% | 0.13% | 0.26% | -0.13% | 0.39% | |
| JPY | -0.07% | -0.15% | -0.23% | -0.14% | -0.26% | -0.37% | 0.13% | |
| NZD | 0.30% | 0.24% | 0.18% | 0.27% | 0.13% | 0.38% | 0.51% | |
| CHF | -0.23% | -0.30% | -0.34% | -0.26% | -0.39% | -0.13% | -0.52% |
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).
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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