- NZD/USD meets with a fresh supply on Tuesday amid some follow-through USD buying.
- Bets for an early RBNZ rate cut and China’s economic woes contribute to the downfall.
- Traders now look forward to Fed Chair Jerome Powell’s speech for short-term impetus.
The NZD/USD pair comes under some renewed selling pressure during the Asian session on Tuesday and momentarily slides below mid-0.6000s for the first time since mid-May. Spot prices now seem to have confirmed a breakdown through the 50-day Simple Moving Average (SMA) and seem vulnerable to prolong a three-week-old downtrend amid some follow-through US Dollar (USD) buying.
Concerns that a Trump presidency would be more inflationary than a Biden administration pushed the yield on the benchmark 10-year government bond to its highest level in a month on Monday. This, in turn, assists the USD to build on the overnight solid rebound from a multi-day low. The New Zealand Dollar (NZD), on the other hand, is weighed down by expectations that the Reserve Bank of New Zealand (RBNZ) will cut rates earlier than projected.
Apart from this, China's economic woes further contribute to driving flows away from antipodean currencies, including the Kiwi. The USD bulls, meanwhile, might hold back from placing aggressive bets and prefer to wait for more cues about the Federal Reserve's (Fed) further policy decisions amid rising bets for an imminent start of the rate-cutting cycle in September. Hence, the focus will remain glued to Fed Chair Jerome Powell's speech later today.
Apart from this, Tuesday's US economic docket – featuring JOLTS Job Openings data – might influence the USD price dynamics and provide some impetus to the NZD/USD pair. The focus will then shift to the FOMC meeting minutes on Wednesday and the release of the closely-watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report – on Friday. This, in turn, will determine the near-term trajectory for the buck and the currency pair.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays weak below 1.0750 ahead of EU inflation data
EUR/USD is trading pressured below 1.0750, halting its three-day winning streak on Tuesday. The extended US Dollar recovery coupled with a softer risk tone undermines the pair, as traders brace for EU inflation data, US jobs report and Fed Chair Powell's speech later in the day.
GBP/USD remains confined in a range near 1.2650 ahead of key US events
GBP/USD stays defensive near 1.2650, extending its struggle early Tuesday. Bets for a BoE rate cut in August act as a headwind amid a modest US Dollar recovery. Traders prefer to wait on the sidelines ahead of the US jobs data and Fed Chair Powell's appearance.
Gold confined to a range with bullish long-term prospects
Gold continues trading in a familiar range within the $2,320-$2,330s, just below the 50-day SMA on Tuesday, amid Futures’ traders “short-covering”, as well as “bargain hunting” by longer-term investors, according to Kitco’s Jim Wyckoff.
Polkadot price primed for upside surge following descending trendline breakout
Polkadot broke out from a descending trendline on Monday, marking a 1.5% increase to $6.42 on Tuesday. Potential buyers on the sidelines eyeing opportunities can consider accumulating DOT between $5.41 and $5.72.
Eurozone Inflation Preview: Price pressures expected to ease after May bounce Premium
Eurostat will release crucial European inflation data on Tuesday. Headline inflation is expected to recede in June. Uncertainty prevails regarding future rate cuts by the ECB.