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NZD/USD tumbles to near 0.5800 as Powell's Jackson Hole speech looms

  • NZD/USD slumps to around 0.5815 in Friday’s Asian session, down 0.10% on the day.
  • RBNZ signaled more rate reductions, weighing on the Kiwi. 
  • US Composite PMI improved in August. 

The NZD/USD pair extends the downside to near 0.5815, the lowest since April 11, during the early Asian trading hours on Friday. The New Zealand Dollar (NZD) softens against the Greenback as the Reserve Bank of New Zealand (RBNZ) delivered a rate cut and left the door open for further moves lower. The speech from Federal Reserve (Fed) Chair Jerome Powell at the Jackson Hole symposium will be in the spotlight later on Friday.

The RBNZ's dovish tone exerts some selling pressure on the Kiwi. The New Zealand central bank decided to cut its policy rate by 25 basis points (bps) to a three-year low of 3.00% at its August policy meeting on Wednesday and flagged further reductions in coming months as policymakers warned of domestic and global headwinds to growth. RBNZ governor Christian Hawkesby said that further data on New Zealand's economic recovery will determine the RBNZ's next steps.

The upbeat US economic data could boost the Greenback and act as a headwind for the pair. The flash US S&P Global’s Composite PMI improved to 55.4 in August from 55.1 in July. Additionally, the US Manufacturing PMI rose to 53.3 in August versus 49.8 previously, above the market consensus of 49.5. Services PMI eased to 55.4 in August from 55.7 in the previous reading but was stronger than the 54.2 expected.

Powell will deliver his speech during the central bank’s annual symposium at Jackson Hole, Wyoming, later on Friday. His remarks could offer some hints about the US interest rate path. Goldman Sachs economists expect Powell to modify his comments from the July meeting, when he said that the Fed is "well positioned" to wait for more information. "We do not expect him to decisively signal a September cut, but the speech should make it clear to markets that he is likely to support one," they added.

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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Lallalit Srijandorn

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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