New Zealand Dollar gains momentum as traders await RBNZ rate decision
|- The New Zealand Dollar edges higher in Tuesday’s Asian session.
- Reduced bets for a RBNZ rate cut and signs of stronger demand from China supported the Kiwi.
- Rising Middle East geopolitical risks might limit the pair’s downside.
- The US Producer Price Index (PPI) will be in the spotlight on Tuesday before the RBNZ rate decision.
The New Zealand Dollar (NZD) trades on a stronger note on Tuesday amid the modest decline of the Greenback. The stronger-than-expected New Zealand employment report last week diminished the possibility of the Reserve Bank of New Zealand (RBNZ) rate cut on Wednesday, which continues to support the Kiwi. Additionally, signs that Chinese demand is improving could contribute to the NZD’s upside as China is New Zealand's largest trading partner.
On the other hand, safe-haven buying amid elevated geopolitical tensions in the Middle East might push the US Dollar (USD) higher. The RBNZ interest rate decision and press conference on Wednesday will be closely watched. The hawkish messages from RBNZ Governor Adrian Orr might lift the NZD against the USD in the near term. Elsewhere, traders will keep an eye on the US economic data, which should shed further light on the Federal Reserve’s (Fed) outlook for rates. 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 gains ground, with all eyes on RBNZ Interest Rate Decision
- ING’s FX analysts Francesco Pesole and Chris Turner noted, “We narrowly favor a hold in August but see a greater chance that the RBNZ will cut 50 bps in October after the Fed has moved first. Ultimately, with over 90 bps of easing priced in by year-end, the difference between a hawkish cut and a dovish hold may not be huge: we still think easing bets can be trimmed by year-end.”
- 12 of 21 economists surveyed by Bloomberg expect the RBNZ to leave its OCR unchanged at 5.5% on Wednesday.
- Over half of the NZIER Shadow Board expects 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 New Zealand central bank should keep the OCR at 5.50%.
- The US Producer Price Index (PPI) is expected to drop to 0.1% MoM in July from 0.2% in June.
- Traders have priced in a nearly 47.5% chance that the Fed will cut the rate by 50 basis points (bps) in the September meeting, down from 52.5% last Friday, according to the CME FedWatch Tool.
Technical Analysis: New Zealand Dollar’s bearish trend prevails
The New Zealand Dollar trades stronger on the day. The bearish outlook of the NZD/USD pair remains intact on the daily chart as the pair holds below the key 100-day Exponential Moving Average (EMA). Nonetheless, if the price decisively crosses above the key EMA, it would resume the uptrend. Meanwhile, the 14-day Relative Strength Index (RSI) is slightly above the 50 midline, indicating a potential shift towards more bullish sentiment in the short term.
A bullish turn could expose NZD/USD to the 100-period EMA near 0.6050. Any follow-through buying above this level will see a rally to 0.6082, the upper boundary of the Bollinger Band. Further north, the next upside target emerges at 0.6134, a high of July 8.
On the flip side, a low of August 6 at 0.5912 acts as an initial support level for the pair. Extended losses below this level could pave the way to 0.5856, a low of July 29 and the lower limit of the Bollinger Band.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the .
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.20% | -0.17% | 0.03% | -0.31% | 0.27% | -0.54% | 0.09% | |
| EUR | 0.20% | 0.04% | 0.24% | -0.09% | 0.47% | -0.33% | 0.29% | |
| GBP | 0.17% | -0.03% | 0.20% | -0.13% | 0.43% | -0.37% | 0.25% | |
| CAD | -0.04% | -0.25% | -0.21% | -0.32% | 0.22% | -0.58% | 0.05% | |
| AUD | 0.31% | 0.10% | 0.13% | 0.33% | 0.56% | -0.24% | 0.38% | |
| JPY | -0.24% | -0.46% | -0.44% | -0.25% | -0.57% | -0.80% | -0.17% | |
| NZD | 0.54% | 0.33% | 0.37% | 0.56% | 0.24% | 0.80% | 0.62% | |
| CHF | -0.10% | -0.29% | -0.26% | -0.05% | -0.39% | 0.17% | -0.63% |
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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