NZD/USD holds below 0.6000 on dovish RBNZ, US GDP data looms

NZD/USD softens to around 0.5970 in Wednesday’s Asian session.
The dovish stance of the RBNZ weighs on the Kiwi, but the additional China stimulus plans might cap its downside.
Investors will monitor the advanced US Q3 GDP, which will be published on Wednesday.

Lallalit Srijandorn FXStreet

The NZD/USD pair remains on the defensive near 0.5970 during the Asian trading hours on Wednesday. The dovish stance of the Reserve Bank of New Zealand (RBNZ) continues to weigh on the pair. Investors will take more cues from the advanced US Gross Domestic Product (GDP) for the third quarter and the US ADP Employment Change for October on Wednesday.

Goldman Sachs analysts expect a possible more aggressive rate cut from the RBNZ. Goldman forecasts 50 bps rate cuts in both November and February, with an elevated risk of a 75 bps cut in November. The dovish outlook of the New Zealand central bank is likely to undermine the New Zealand Dollar (NZD) in the near term.

China is considering issuing around 10 trillion yuan ($1.4 trillion) in extra debt in the next years to revive its sluggish economy, per Reuters. The positive development surrounding China’s fresh stimulus measures might support the China-proxy Kiwi as China is a major trading partner to New Zealand.

The expectation of less aggressive rate cuts from the US Federal Reserve (Fed) this year lifts the Greenback. Traders have priced in a nearly 98.4% chance of a 25 bps rate cut by the Fed in the November meeting.

The US Department of Labor showed on Tuesday that the JOLTS Job Openings and Labor Turnover Survey for September fell to its lowest level in three and a half years, missing expectations.

Meanwhile, the Conference Board (CB) Consumer Confidence for October registered the highest in nine months as perceptions of the labor market improved. Investors will shift their attention to the US Q3 GDP data on Wednesday ahead of the highly-anticipated Nonfarm Payrolls (NFP) data.

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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