NZD/USD extends the rally above 0.6100 as Fed rate cut bets rise

NZD/USD gathers strength to near 0.6105 in Wednesday’s early Asian session.
Financial market bets rose after the Fed’s Powell said US central bank could start rate cuts as soon as this month.
US job openings rose 374,000 to 7.769 million in May, better than estimated.

Lallalit Srijandorn FXStreet

The NZD/USD pair attracts some buyers to around 0.6105 during the early European session on Wednesday. The US Dollar (USD) weakens against the New Zealand Dollar (NZD) as the Federal Reserve (Fed) rate cut bets rise. The US ADP Employment Change report for June will be in the spotlight later on Wednesday.

Late Tuesday, Fed Chair Jerome Powell reiterated that the US central bank will wait for more data before it starts monetary policy easing, but he did not rule out a rate reduction in the July meeting. Short-term interest-rate futures pointed to about a one-in-four chance of a rate cut by the July meeting after the comments, up from less than one-in-five earlier, according to the CME FedWatch tool.

Additionally, the upbeat Chinese economic data provides some support to the China-proxy Kiwi, as China is a major trading partner of New Zealand. China’s Caixin Manufacturing Purchasing Managers Index (PMI) rose to 50.4 in June from 48.3 in May, surpassing expectations of 49.0. The 50 mark separates growth from contraction.

On the other hand, US job openings unexpectedly rose in May, underpining the Greenback. Data released on Tuesday showed that US JOLTS Job Openings rose to 7.76 million in May, compared to 7.395 million openings reported in April. This figure came in above the market expectation of 7.3 million.

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.

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