NZD/USD struggles near 0.6000 mark, seems vulnerable to slide further

NZD/USD edges lower on Friday amid the emergence of some USD dip-buying.
Bets for smaller Fed rate cuts and Middle East tensions underpin the Greenback.
Expectations for aggressive rate cuts by RBNZ further exert pressure on the pair.

Haresh Menghani FXStreet

The NZD/USD pair attracts some sellers during the Asian session on Friday and currently trades around the 0.6000 mark, just above its lowest level since August 16 touched earlier this week.

Expectations that the Federal Reserve (Fed) will proceed with modest rate cuts as the economy remains on a strong footing help the US Dollar (USD) to stall the previous day's retracement slide from a nearly three-month top. Apart from this, Middle East tensions, along with the US political uncertainty, benefit the Greenback's relative safe-haven status and turn out to be a key factor exerting some pressure on the NZD/USD pair.

Adding to this, bets for a more aggressive interest rate cut by the Reserve Bank of New Zealand (RBNZ) undermine the New Zealand Dollar (NZD) and further contribute to the offered tone surrounding the currency pair. This, along with the recent breakdown below a technically significant 200-day Simple Moving Average (SMA), suggests that the path of least resistance for the NZD/USD pair remains to the downside.

That said, the lack of follow-through selling makes it prudent to wait for acceptance below the 0.6000 psychological mark before positioning for an extension of the downfall witnessed since the beginning of this month. Traders now look to the US economic docket – featuring Durable Goods Orders and the Revised Michigan Consumer Sentiment Index – for some impetus and grab short-term opportunities around the NZD/USD pair.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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