NZD/USD bounces off one-week low; remains below 0.6000 as traders await FOMC decision on Wednesday
- NZD/USD finds some support during the Asian session as the USD bulls pause for a breather.
- A possible extension of the US-China trade truce also acts as a tailwind for the antipodean Kiwi.
- Traders, however, seem reluctant and opt to wait for the crucial FOMC decision on Wednesday.
The NZD/USD pair rebounds a few pips from a one-week trough touched during the Asian session on Tuesday and climbs to the 0.5975 region in the last hour. Spot prices, for now, seem to have snapped a three-day losing streak, though any meaningful recovery seems elusive.
The US Dollar (USD) pauses following the previous day's sharp rally to a one-and-a-half week high and turns out to be a key factor acting as a tailwind for the NZD/USD pair. Apart from this, the latest trade optimism and a possible extension of the US-China trade truce turn out to be another factor lending some support to antipodean currencies, including the Kiwi.
Meanwhile, the downside for the USD remains limited in the wake of the growing acceptance that the Federal Reserve (Fed) will keep interest rates elevated on the back of worries that higher US tariffs would boost inflation. Traders might also opt to wait for the crucial FOMC decision on Wednesday before placing directional bets around the NZD/USD pair.
In the meantime, Tuesday's US economic docket – featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index – will be looked upon for some impetus later during the North American session. Nevertheless, the fundamental backdrop warrants caution for the NZD/USD bulls and positioning for any meaningful appreciation.
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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
