NZD/USD bounces back to near 0.5950 as US Dollar dives on Fed’s bulk rate-cut bets
|- NZD/USD rebounds swiftly after posting a fresh nine-month low near 0.5850 after a sharp weakness in the US Dollar.
- Fed Goolsbee sees emergency rate cuts on the table.
- The NZ Dollar will dance to the tunes of the Q2 Employment data.
The NZD/USD pair recovers at a faster pace after plunging to near 0.5850 in Monday’s New York session. The Kiwi asset bounces back strongly after posting a fresh nine-month low as the US Dollar (USD) weakens on expectations that the Federal Reserve (Fed) could announce an emergency rate-cut decision due to growing fears of a United States (US) economic slowdown.
The speculation for Fed’s emergency rate cuts has swelled after Chicago Fed Bank President Austan Goolsbee’s interview with CNBC. Goolsbee said, emergency rate cuts are on table.
Deepening fears of US slowdown have prompted risk-aversion among market participants. The S&P 500 has opened with a bloodshed, showing signs of a sharp decline in investors’ risk-appetite.
Fears of US slowdown indicated by a sharp rise in the Unemployment Rate to 4.3%, slower job growth and contracting manufacturing sector have weighed heavily on the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, dives almost 1% to near 102.00. 10-year US Treasury yields have plummeted below 3.7%.
Meanwhile, the US ISM Services PMI has returned into the expanding trajectory after contracting in June. The PMI report showed that activities in the service sector expanded at a faster-than-expected pace to 51.4. Investors anticipated a growth in the Services PMI to 51.0 from the former release of 48.8.
In the Asia-pacific region, the next move in the New Zealand Dollar (NZD) will be influenced by the Q2 Employment data, which will be published on Wednesday. The Unemployment Rate is estimated to have increased to 4.7% from the prior release of 4.3%. Annual Labor Cost Index is expected to have decelerated to 3.5% from Q1 release of 3.8%, with quarterly figure growing steadily by 0.8%. Easing labor market conditions would fuel expectations of early rate cuts by the Reserve Bank of New Zealand (RBNZ).
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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