- NZD/USD extends losses as traders expect the Fed to skip a 50bp rate cut in September.
- Traders are looking ahead to the US ISM manufacturing PMI on Tuesday ahead of upcoming US jobs data.
- New Zealand’s Terms of Trade Index rose 2.1% quarter-on-quarter in the second quarter, reversing an earlier decline of 5.1%.
NZD/USD continues to lose ground for the third consecutive session, trading around 0.6200 during Asian hours on Tuesday. The US Dollar (USD) is receiving support from the diminishing odds of an aggressive interest rate cut by the US Federal Reserve in September.
Traders are awaiting ISM manufacturing PMI data due later in the day. Attention will shift to upcoming US employment data, particularly Non-Farm Payrolls (NFP) for August, for further insight into the possible timing and scale of Fed rate cuts.
US Treasury yields continue to rise and offer support to the US dollar, but their gains may be limited by rising expectations of a 25 basis point rate cut by the Fed in September. According to the CME’s FedWatch tool, markets are almost 70% certain of at least a 25 basis point (bps) rate cut by the Fed at its September meeting.
In New Zealand, the Terms of Trade Index rose 2.1% quarter-on-quarter in the second quarter, reversing a 5.1% decline in the previous quarter and beating market expectations of a 2.0% increase. Export prices saw a significant increase of 5.2% in the second quarter, recovering from a 0.3% decline in the March quarter. Import prices also recovered, rising 3.1% after a sharp 5.1% decline in the previous period.
New Zealand’s NZX 50 index is consolidating, hovering around 12,500, on the back of a lack of global drivers with Wall Street closed for Monday’s break. Traders are assessing July manufacturing PMI data from China, a key trading partner. Official figures indicated the sharpest contraction in factory activity in six months, while private survey readings suggested the manufacturing sector had expanded for the seventh time this year.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the health of the New Zealand economy and the policies of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. Developments in the Chinese economy tend to move the Kiwi because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely translate into fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor that moves the NZD is dairy prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also push up bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate spread, or how rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and can encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive that overall market risks are low and are optimistic about growth. This often translates into a more favourable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
