- NZD/USD recovers to near 0.6215 in Friday’s early Asian session.
- Reduced bets of Fed deeper rate cuts and the cautious mood might underpin the USD and cap NZD/USD’s upside.
- The RBNZ will likely cut its OCR by 50 bps next week.
The NZD/USD pair edges higher to around 0.6215 on Friday during the early Asian trading hours. The cautious mood ahead of the key US employment data on Friday and the growing bets of the Reserve Bank of New Zealand (RBNZ) rate cut next week might cap the pair’s upside.
Federal Reserve Bank of Chicago President Austan Goolsbee reiterated on Thursday that the interest rates need to come down over the next year by “a lot.” Goolsbee further stated that he’d like to keep the unemployment rate at 4.2% from rising any further. Meanwhile, Richmond Fed President Thomas Barkin said on Wednesday that a jumbo rate cut last month was an acknowledgement that its policy rate was "out of sync" with where the economy stands but shouldn't be taken as a sign that the battle with inflation is finished.
Traders await the US employment data for fresh impetus. The US economy is expected to see 140K jobs added in September. While the Unemployment Rate is expected to remain unchanged at 4.2% in the same period.
The rising geopolitical tensions in the Middle East and the uncertainty around the US elections might support the US Dollar in the near term. After carrying out further airstrikes in Lebanon's capital on Thursday, the Israeli military vows to continue attacking Hezbollah targets in Beirut and southern Lebanon. An attack in central Beirut killed nine people, marking the first time Israel has targeted the city since 2006, per CNN.
The RBNZ is anticipated to reduce the Official Cash Rate (OCR) by 50 basis points to 4.75% next week, after a 25 bps cut in August. The swaps market implies a 75% chance of a 50 bps cut, while the vast majority of analysts surveyed by Bloomberg have a 50 bps cut pencilled in. The expectation that the RBNZ will continue cutting interest rates next week is likely to drag the Kiwi lower against the USD.
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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