NZD/USD bounces up from lows, remains capped below 0.5870

The New Zealand Dollar waves within range against the USD, with support at 0.5845 holding bears.
The Greenback pared recent gains with investors positioning for US flash PMIs and Fed Powell's speech.
In New Zealand, downbeat macroeconomic figures are feeding speculation of further RBNZ easing.

Guillermo Alcala FXStreet

The New Zealand Dollar is experiencing an “inside day” against the US Dollar during a choppy trading session on Tuesday. The pair bounced from lows of 0.5845 in the early European session but remains capped below Monday’s highs at 0.5671.

Market movements have been tentative on Tuesday with all eyes on September’s preliminary US PMI figures, and a speech on the economic outlook by Fed Chair Jerome Powell, who might provide further clues about the bank’s next monetary policy steps..

US flash PMIs are expected to show that business activity slowed down in both the manufacturing and the services sectors, although still at levels revealing moderate growth. Investors, however, are holding their breath, wary of further signs that the trade tariffs are starting to bite into economic activity.

In New Zealand, data released last week showed a larger-than-expected contraction in Q2 Gross Domestic Product and a widening trade deficit. These figures have boosted speculation of further RBNZ rate cuts and are keeping Kiwi’s upside attempts limited.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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