NZD/USD attracts some buyers above 0.5950 as Fed rate cut bets rise
- NZD/USD strengthens to near 0.5970 in Wednesday’s early European session, up 0.30% on the day.
- Rising Fed rate cut bets in September weigh on the US Dollar.
- Trump announced another 90-day pause on China tariffs.
The NZD/USD pair attracts some buyers to around 0.5970 during the early European session on Wednesday, bolstered by a softer US Dollar (USD). Traders raise their bets that the US Federal Reserve (Fed) will cut its interest rate in the September meeting. Fed policymakers are scheduled to speak later on Wednesday, including Chicago Fed President Austan Goolsbee and Atlanta Fed President Raphael Bostic.
Data released on Tuesday showed cooler-than-expected inflation in the United States (US), prompting traders to raise bets of more interest rate cuts than previously expected this year. This, in turn, undermines the Greenback and acts as a tailwind for the pair.
The US Consumer Price Index (CPI) came in line with expectations, rising 2.7% on a yearly basis in July, the US Bureau of Labor Statistics (BLS) revealed on Tuesday. Meanwhile, the annual core CPI climbed by 3.1% in July versus the 2.9% rise prior and beat the estimates of 3.0%.
US President Donald Trump on Monday extended a tariff truce with China for another 90 days, just hours before the last agreement between the world’s two largest economies was due to expire. China’s Commerce Ministry stated that the country will suspend additional tariffs on US goods for 90 more days, after Trump signed an executive order extending the tariff truce.
Analysts believe that some uncertainty lifts, but the trade tensions may not. Any signs of renewed trade tensions could exert some selling pressure on the China-proxy Kiwi, as China is a major trading partner of New Zealand.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
