- NZD/USD plunges below 0.5850 amid dismal risk tone and firm RBNZ dovish bets.
- The US Dollar edges higher ahead of the US NFP data for November.
- Economists estimate the US jobless rate to have accelerated to 4.2%.
The NZD/USD pair plummets below the key support of 0.5850 in European trading hours on Friday. The Kiwi pair plunges as the New Zealand Dollar (NZD) weakens across the board amid firm expectations that the Reserve Bank of New Zealand (RBNZ) will follow an aggressive policy-easing approach.
The RBNZ reduced its Official Cash Rate (OCR) by 50 basis points (bps) to 4.25% in its monetary policy meeting on November 27 and guided for similar rate cut pace if economic conditions continue to evolve as projected. Traders are also confident the RBNZ will cut its OCR again by 50 bps to 3.75% in the February policy meeting.
Meanwhile, cautious market mood ahead of the United States (US) Nonfarm Payrolls (NFP) data release has also weighed on the Kiwi dollar. S&P 500 futures exhibit a subdued performance in European session. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher from the key support of 105.70.
The US NFP data will influence market expectations about whether the Federal Reserve (Fed) will cut interest rates again in the policy meeting on December 18. The Fed has already reduced its key borrowing rates by 75 bps in its meetings in September and November.
Economists expect the US economy added 200K fresh workers, significantly higher than 12K in October. Payrolls were significantly lower last month as some industries were affected by the hurricanes and there were labor strikes at Boeing plants. The Unemployment Rate is estimated to have accelerated to 4.2% from the former release of 4.1%.
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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