- NZD/USD jumps to the weekly highs near 0.6000 in Monday’s early European session.
- The US presidential election uncertainty weighs on the USD and supports NZD/USD.
- More dovish stance from the RBNZ might cap the Kiwi’s upside.
The NZD/USD pair rises to near 0.6000 during the early European session on Monday. The weaker Greenback provides some support to the pair. Investors will closely monitor the looming US presidential election on Tuesday for fresh catalysts. This key event could trigger the volatility in the market.
The decline in the US Dollar (USD) is likely due to a poll released over the weekend that reduced the probability of Republican Donald Trump winning the elections. Analysts predict that if Trump wins, the USD will rise. Chris Weston, an analyst at broker Pepperstone, said, "A Trump presidency with full control of Congress could be most impactful, as one would expect a solid sell-off in Treasuries resulting in a spike higher in the USD."
Analysts believe potential uncertainty surrounding the election outcome will not impact the US Federal Reserve (Fed) decision-making process on Thursday. The Fed is expected to cut its benchmark rate by a quarter-point at the November meeting, following a half-point cut in September.
The upside of the New Zealand Dollar (NZD) might be limited due to the rising bets of a more dovish stance from the Reserve Bank of New Zealand (RBNZ). The markets have fully priced in a 50 basis point rate cut in November and currently estimate the reduction in the cash rate from 4.75% to 3.82% by the end of this year.
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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