- NZD/USD turns lower for the third straight day and drops to over a two-month trough.
- Bets for an early RBNZ rate cut and China’s economic woes continue to weigh on the Kiwi.
- Dovish Fed expectations and US politics undermine the USD, lending support to the pair.
The NZD/USD pair attracts fresh sellers following an Asian session uptick to the 0.6025-0.6030 region and turns lower for the third successive day on Monday. This also marks the fifth day of a negative move in the previous six and drags spot prices to the lowest level since May 14 in the last hour, with bears now awaiting acceptance below the 0.6000 psychological mark before positioning for further losses.
The New Zealand Dollar (NZD) continues with its relative underperformance in the wake of bets that the Reserve Bank of New Zealand (RBNZ) will cut interest rates soon in the wake of the weaker CPI report released last week. Apart from this, worries about a slowdown in China – the world's second-largest economy – dents demand for antipodean currencies, including the Kiwi, and contributes to the offered tone surrounding the NZD/USD pair.
The US Dollar (USD), on the other hand, meets with a fresh supply on the first day of a new week in reaction to the US political development over the weekend and dovish Federal Reserve (Fed) expectations. In fact, US President Joe Biden's exit from the presidential race on Sunday prompts investors to unwind some trades betting on a Trump victory. Furthermore, the markets have fully priced in a Fed rate cut move at the September policy meeting.
Moreover, investors anticipate that the US central bank will lower borrowing costs two more times by year-end. This, in turn, keeps the US Dollar (USD) bulls on the defensive and helps limit the downside for the NZD/USD pair. In the absence of any relevant market-moving economic releases from the US, the mixed fundamental backdrop makes it prudent to wait for some follow-through selling before placing fresh bearish bets around the pair.
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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