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- NZD/USD gains ground above 0.6100, eyes on Fed Powell’s testimony
NZD/USD gains ground above 0.6100, eyes on Fed Powell’s testimony
- NZD/USD holds positive ground near 0.6130 in Tuesday’s early Asian session.
- The New Zealand central bank is expected to keep policy unchanged at its July meeting on Wednesday.
- Rising Fed rate cut bets are likely to weigh on the US Dollar.
The NZD/USD pair trades on a stronger note around 0.6130 on Tuesday during the early Asian trading hours. The US Dollar (USD) consolidates as traders await the Federal Reserve’s (Fed) Jerome Powell’s testimony on Tuesday ahead of the Reserve Bank of New Zealand's (RBNZ) interest rate decision on Wednesday.
The RBNZ is expected to keep the Official Cash Rate (OCR) unchanged at 5.50% at its July meeting on Wednesday, despite signs of weaker economic activity in New Zealand. Traders will take more cues from the Monetary Policy Statement. A hawkish stance by the RBNZ might support the New Zealand Dollar (NZD) in the near term.
On the other hand, the growing speculation that the US Fed will cut the interest rate sooner than expected this year exerts some selling pressure on the Greenback. According to the CME FedWatch tool, traders are now pricing in nearly 76% odds of Fed rate cuts in September, up from 64% recorded a week ago.
On the US docket, the Consumer Price Index (CPI) data for June might offer some hints about the inflation trajectory in the US. The US CPI inflation is forecast to drop to 3.1% YoY in June from 3.3% in May, while core inflation is projected to remain steady at 3.4% YoY in the same reported period. Any signs of softer inflation in the US might drag the USD lower and create a tailwind for the NZD/USD pair.
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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