- NZD/USD recovers intraday losses as the US Dollar struggles to resume its upside journey.
- The risk profile remains favorable for risk-sensitive assets.
- Investors await the US NFP the most in a US heavy-data week.
The NZD/USD pair recovers strongly from the intraday low of 0.6170 in in Wednesday’s New York session. The Kiwi asset bounces back as the US Dollar (USD) struggles to resume its upside journey after correcting from a fresh two-week high.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades in a tight range near 101.60. Meanwhile, the market sentiment remains risk-averse amid uncertainty ahead of the United States (US) Nonfarm Payrolls (NFP) data for August, which will be published later this week. S&P 500 futures have posted significant losses in the American session, portraying a decline in the risk-appetite of market participants.
Investors keenly await the US NFP data release as it will shape the Federal Reserve’s (Fed) interest rate path. The Fed is widely anticipated to start reducing interest rates from the September meeting. However, traders remain split over the likely Fed interest rate cut size. According to the CME FedWatch tool, the likelihood of a 50-basis points (bps) interest rate reduction in September is 39%, while the rest favors a 25-bps decline to 5.00%-5.25%.
The possibility of a 50-bps interest rate reduction could increase if the US NFP report shows that the labor demand remained weak and the Unemployment Rate increased in August. On the contrary, steady or upbeat labor market data would weaken the same.
In today’s session, investors will focus on the US JOLTS Job Openings data for July, which will be published at 14:00 GMT. According to the estimates, US employers posted 8.1 million job vacancies, marginally lower from 8.184 million in June.
On the Asia-Pacific front, the New Zealand Dollar (NZD) will be guided by market speculation for Reserve Bank of New Zealand’s (RBNZ) interest rate path amid absence of top-tier economic data. The RBNZ unexpectedly pivoted to policy normalization in August.
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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