NZD/USD posts modest gains above 0.6250, focus on US GDP data, Fed’s Powell speech
|- NZD/USD trades with mild gains near 0.6260 in Thursday’s Asian session.
- Fed's Kugler said she strongly supported half-point rate cut.
- China's rate cuts and new stimulus measures support the Kiwi.
The NZD/USD pair trades with mild positive bias around 0.6260 on Thursday during the Asian trading hours. The uptick of the pair is bolstered by the fresh Chinese stimulus plans and the softer US Dollar (USD) broadly. The final US Gross Domestic Product (GDP) Annualized for the second quarter (Q2) and Federal Reserve (Fed) Chair Jerome Powell's speech will be the highlights on Thursday.
The rising Fed deeper rate cut expectation in November weighs on the Greenback. Meanwhile, the US Dollar Index (DXY), which tracks the USD’s value against six major currencies, edges lower to 100.85. Federal Reserve Governor Adriana Kugler said on Wednesday that she will support additional rate cuts going forward, adding that the Fed should keep the focus on reducing inflation and also shift attention to maximum employment. The markets have priced in nearly 57.4% odds of a second 50 bps rate cut in the November meeting, while the chance of 25 bps stands at 42.6%, according to the CME FedWatch Tool.
The final US Q2 GDP data will be released later in the day, which is projected to expand by 3.0%. On Friday, the attention will shift to the Personal Consumption Expenditures Price Index (PCE), which could be further interpreted by the Fed and might offer some cues about the inflation trajectory in the US. The headline PCE is expected to show an increase of 2.3% YoY in August, while the core PCE is forecast to rise 2.7%.
On the Kiwi front, the People's Bank of China (PBOC) unleashed a swath of stimulus measures including cuts to its benchmark interest rate and reducing the reserve requirement ratio (RRR). This, in turn, lifts the China-proxy New Zealand Dollar (NZD) as China is the largest export partner to New Zealand. Nonetheless, the cautious mood ahead of the key US data or safe-haven flows amid the ongoing geopolitical risks could support the Greenback and cap the pair’s upside.
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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