NZD/USD jumps to near 0.6200 with Fed policy on the horizon


  • NZD/USD climbs to near 0.6200 with the Fed policy meeting taking center stage.
  • Traders raise bets supporting the Fed interest rate cuts by 50 bps to 4.75%-5.00%.
  • The RBNZ is expected to cut interest rates in the November and December policy meetings.

The NZD/USD pair refreshes a weekly high of 0.6200 in Monday’s New York session. The Kiwi asset strengthens as the US Dollar (USD) has been hit hard by growing speculation that the Federal Reserve (Fed) would start the policy-easing cycle aggressively in its monetary policy meeting on Wednesday.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles below 100.70. According to the CME FedWatch tool, the likelihood of the Fed reducing the key interest rates by 50 basis points (bps) rose to 65% from 30% a week ago.

Market expectations for Fed sizable rate cuts have been prompted by the slower-than-expected United States (US) Producer Price Index (PPI) data for August, published last week. Annual headline producer inflation came in lower at 1.7% than estimates of 1.8% and July’s print of 2.1%.

Before the Fed’s policy announcement, investors will focus on the US Retail Sales data for August, which will be published on Tuesday. The Retail Sales data, a key measure of consumer spending, is estimated to have grown at a slower pace of 0.2% from 1% in July. A sharp slowdown in households’ spending momentum would weigh on the US Dollar.

Meanwhile, the New Zealand (NZD) performs strongly against the US Dollar despite the Reserve Bank of New Zealand (RBNZ) is expected to cut interest rates in all monetary policy meetings remaining this year. Investors expect the RBNZ to maintain a dovish interest rate guidance due to growing economic concerns.

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.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD remains supported by 0.6700

AUD/USD remains supported by 0.6700

AUD/USD traded on the back foot, adding to Monday’s decline, although meeting decent contention around the 0.6700 barrier on Tuesday, all against the backdrop of a tepid upside bias in the US Dollar.

AUD/USD News
EUR/USD now targets the 200-day SMA

EUR/USD now targets the 200-day SMA

Extra weakness dragged EUR/USD to levels last seen in August around 1.0880 in response to the still unabated march north in the Greenback and rising cautiousness ahead of the ECB’s rate decision later in the week.

EUR/USD News
Gold holds on to modest gains around $2,660

Gold holds on to modest gains around $2,660

Gold clings to small gains above $2,650 on Tuesday after closing the first day of the week virtually unchanged. Growing signs of an economic downturn in the Chinese economy makes it difficult for XAU/USD to gather recovery momentum.

Gold News
XRP back above $0.54 as Ripple makes key announcements at Swell 2024

XRP back above $0.54 as Ripple makes key announcements at Swell 2024

Ripple (XRP) holds steady above key support at $0.54 on Tuesday as payment remittance firm Ripple makes announcements regarding exchange partners for its stablecoin RLUSD that is in the final stages of its launch.

Read more
RBA widely expected to keep key interest rate unchanged amid persisting price pressures

RBA widely expected to keep key interest rate unchanged amid persisting price pressures

The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.

Read more
Five best Forex brokers in 2024

Five best Forex brokers in 2024

VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals. 

Read More

Forex MAJORS

Cryptocurrencies

Signatures