- NZD/USD gains momentum around 0.5980 in Wednesday’s early Asian session, gaining 0.54% on the day.
- New Zealand’s Unemployment Rate ticked higher to the highest since March 2021, rising to 4.6% in Q2 vs. 4.3 prior.
- Fed’s Daly expects interest rate cuts to come as the labor market weakens.
The NZD/USD pair extends the rally near 0.5980 during the early Asian session on Wednesday. The further upside of the New Zealand Dollar (NZD) is bolstered by the upbeat New Zealand employment report. Traders trim bets on RBNZ, pivoting to rate cuts next week.
Data released by Statistics New Zealand on Wednesday showed that the country’s Unemployment Rate rose to 4.6% in the second quarter (Q2) from 4.3% in the first quarter, which is better than the estimated 4.7%. Additionally, the Employment Change increased by 0.4% in Q2 from a 0.2% decline in the previous reading. This figure came in above the market consensus of a 0.2% decrease. The better-than-expected readings have diminished the possibility of the Reserve Bank of New Zealand (RBNZ) rate cut next week, which lift the Kiwi against the USD.
On the other hand, markets expect a more aggressive rate cut starting in September after the weaker US employment data in July raised the fear of a looming US recession. San Francisco Federal Reserve President Mary Daly said on Monday that she expects rate reduction later this year, adding that progress on inflation and a clear slowdown in hiring likely will drive the central bank to some extent of policy easing. Meanwhile, Chicago Fed President Austan Goolsbee stated that if there are trouble signs with the economy, the central bank will fix it.
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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