NZD/USD softens below 0.6100 on firmer US Dollar, eyes on US ADP Employment data

NZD/USD drifts lower to around 0.6085 in Wednesday’s early European session.
The upbeat US job openings report boosts the US Dollar, but the Fed’s dovish bets might cap its upside.
The RBNZ is expected to keep its Official Cash Rate steady in the July meeting.

Lallalit Srijandorn FXStreet

The NZD/USD pair faces some selling pressure near 0.6085 during the early European session on Wednesday, pressured by the rebound in the Greenback. Traders brace for the US ADP Employment Change report for June, which will be published later on Wednesday.

The US Dollar (USD) receives some support from the upbeat US job openings report. 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 consensus of 7.3 million.

Nonetheless, the dovish comments from the Federal Reserve (Fed) officials might cap the upside for the USD and act as a tailwind for the pair. Fed Chair Jerome Powell said on Tuesday that he would not rule out a potential interest rate cut at this month's meeting, adding that everything depends on incoming data.

The Reserve Bank of New Zealand is widely anticipated to pause its easing cycle at its July meeting next week. The RBNZ has already reduced rates by 225 basis points (bps) to 3.25%. Policymakers suggested that interest rates are now in the neutral zone, and they want to wait to see the impact of past cuts.

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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