- NZD/USD trades sideways around 0.5950, with investors focusing on the US NFP report for July.
- The Fed is expected to roll back its restrictive policy framework from September.
- Risk aversion market mood has dampened the New Zealand Dollar’s near-term outlook.
The NZD/USD pair trades in a tight range near 0.5950 in Friday’s European session. The Kiwi asset exhibits indecisiveness among market participants as investors await the United States (US) Nonfarm Payrolls (NFP) data for July, which will be published at 12:30 GMT.
The NFP report will indicate the current status of the labor market, which will influence market speculation for Federal Reserve’s (Fed) September interest rate cuts. According to the estimates, US employers are expected to have hired 175K fresh workers, lower than 206K payrolls recorded in June. The Unemployment Rate is expected to remain steady at 4.1%.
Apart from Employment numbers, investors will focus on the Average Hourly Earnings data, a key measure to wage growth that fuels consumer spending which eventually influence price pressures. Annually, the wage growth measure is estimated to have decelerated to 3.7% from the prior reading of 3.9%, with monthly figure growing steadily by 0.3%.
Meanwhile, market expectations for the Fed reducing interest rates are firm as Fed Chair Jerome Powell acknowledged that policymakers have gained greater confidence that inflation will return to the desired rate of 2% from Consumer Price Index (CPI) reports released in the second quarter. Jerome Powell said rate cuts will be on the table in September if inflation continues to decline consistently with bank’s expectations.
In the Asia-Pacific region, the overall outlook of the New Zealand Dollar (NZD) remains weak as investors become risk-averse amid fears of slowdown in the US economy. Also, China’s vulnerable economic prospects have dampened investors’ risk appetite.
Going forward, the major trigger for the Kiwi Dollar will be the Q2 Employment and Labor Cost Index data, which will be published on Tuesday. The Employment data will influence market expectations for Reserve Bank of New Zealand (RBNZ) rate cuts this year.
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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