NZD/USD extends downside to near 0.5850 on stronger US Dollar, dovish RBNZ expectations

NZD/USD weakens to around 0.5855 in Friday’s early Asian session, down 0.18% on the day.
The US weekly jobless claims declined to a seven-month low.
The RBNZ is expected to cut its interest rates by 50 bps next week.

Lallalit Srijandorn FXStreet

The NZD/USD pair trades in negative territory for the third consecutive day near 0.5855 during the early Asian session on Friday. The firmer US Dollar (USD) to the fresh 2024 tops drags the pair lower. Later on Friday, the flash US S&P Global Purchasing Managers Index (PMI) data and the final Michigan Consumer Sentiment will be released.

Data released by the US Department of Labor on Thursday showed that the Initial Jobless Claims fell to 213,000 for the week ending November 16, down from 219,000 (revised from 217,000) in the previous week and below the forecast of 220,000. This upbeat data suggested that the labor market remains strong and the Federal Reserve (Fed) could achieve a soft landing.

Fed Chair Jerome Powell signaled last week that the Fed isn’t necessarily inclined to cut rates at the next upcoming meetings. “The economy is not sending any signals that we need to be in a hurry to lower rates,” said Powell. Meanwhile, Chicago Fed President Austan Goolsbee said on Thursday that it may make sense to slow the pace of Fed rate cuts as inflation is on its way down to 2%. The cautious stance from the Fed continues to underpin the Greenback and acts as a headwind for NZD/USD.

On the Kiwi front, the rising bets that the Reserve Bank of New Zealand (RBNZ) will lower interest rates by 50 basis points (bps) next week might exert some selling pressure on the New Zealand Dollar (NZD). "The economy is growing sluggishly at best, and the labor market is pretty weak. So that sets up the RBNZ next week to deliver another 50 basis point cut, the same as we saw in October," said Shannon Nicoll, associate economist at Moody's Analytics.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.

GBP/USD clings to multi-day peaks below 1.3500

GBP/USD trades with marked gains on Friday, now giving away some gains following an earlier surpass of the key 1.3500 yardstick. Indeed, Cable gathers fresh steam amid the strong offered stance in the Greenback, all after US NFP badly missed expectations in July.

EUR/USD: Post-NFP bounce falters around 1.1580

EUR/USD reverses Thursday’s decline and trades with solid gains in the 1.1560 region, or two-month peaks, on Friday. The pair’s firm performance comes in a context of a sharp correction in the US Dollar as investors continue to assess disheartening US NFP readings.

How Wall Street rigs the game [Video]

In this week’s Live from the Vault, Andrew Maguire is joined by Peter Antico and Sean Stone to discuss the Paradigm of Money - an in-depth expose of financial market corruption, from naked shorting to the two-tier system that protects Wall Street.

XRP Price Forecast: XRP nears critical $1.00 support

Ripple (XRP) remains pressured on Friday, trading around $1.03 at the time of writing. The token appears to hold this current level as support but lacks a catalyst to sustain a knee-jerk rebound toward the next key resistance at $1.10.

Is Gold about to enter its biggest bull run since 2020?

Gold has stormed back into the spotlight and its next move could leave late buyers chasing. On August 5, the yellow metal surged almost 7% – roughly $174 – to close near $4,308 an ounce, posting one of its biggest daily advances in recent history. A weaker U.S dollar, falling Treasury yields, changing Federal Reserve expectations and renewed safe-haven demand all struck at once.

9-3: Is the Federal Reserve’s vote tally Warsh's new forward guidance?

The rate did not move. Neither did the statement, and that’s the more interesting fact. Set the July 29 Federal Open Market Committee (FOMC) statement beside the one issued on June 17, and the two documents are identical apart from a single verb and a paragraph at the bottom naming three dissenters.