- NZD/USD meets with a fresh supply amid a slight deterioration in the global risk sentiment.
- The USD languishes near a multi-week low, though it does little to lend any support to the pair.
- Traders look to the US NFP report for cues about the Fed’s rate-cut path and a fresh impetus.
The NZD/USD pair attracts fresh sellers during the Asian session on Friday and erodes a part of the previous day's modest gains. Spot prices drop to a daily low, around the 0.5860 region in the last hour, as traders keenly await the release of the US Nonfarm Payrolls (NFP) report for some meaningful impetus heading into the weekend.
The closely watched US monthly jobs data could provide some cues about the Federal Reserve's (Fed) rate cut path, which, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and drive the NZD/USD pair. In the meantime, the recent decline in the US Treasury bond yields keeps the USD bulls on the defensive near a multi-week low. That said, bets for a less dovish Fed, along with a softer tone across the global equity markets, act as a tailwind for the buck and weigh on perceived riskier currencies, including the Kiwi.
Investors seem convinced that US President-elect Donald Trump's policies will boost inflation and force the Fed to stop cutting rates. Moreover, the recent hawkish remarks from several FOMC members, including Fed Chair Jerome Powell, suggest that the US central bank will adopt a more cautious stance. This, along with persistent geopolitical risk, weighs on investors' sentiment. Apart from this, bets for aggressive policy easing by the Reserve Bank of New Zealand (RBNZ) support prospects for further weakness in the NZD/USD pair.
From a technical perspective, the recent range-bound price action over the past three weeks or so might still be categorized as a bearish consolidation phase. Furthermore, the lack of any meaningful buying and negative oscillators on the daily chart validates the near-term bearish outlook for the NZD/USD pair. Hence, any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
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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