- NZD/USD continues to lose ground amid market caution ahead of the Fed’s interest rate decision.
- The CME’s FedWatch tool suggests a quarter basis point cut on Wednesday is almost fully priced in.
- The New Zealand dollar faces challenges amid renewed concerns about China’s economy.
NZD/USD extends losses for the second day in a row, trading around 0.5740 during early European hours on Wednesday. This decline in the pair could be attributed to increased risk aversion ahead of the US Federal Reserve (Fed) decision expected later in the North American session.
However, the US Dollar (USD) remains under pressure as traders prepare for a possible 25 basis point rate cut by the Fed at its December meeting. According to the CME’s FedWatch tool, markets are almost fully pricing in a quarter-basis-point cut at the Fed’s December meeting. Traders will also closely monitor Fed Chair Jerome Powell’s press conference and the Summary of Economic Projections (dot-plot) after the meeting.
The New Zealand Dollar (NZD) remains under pressure due to renewed concerns about the economy of China, its main trading partner, following weak economic data. Chinese retail sales fell short of expectations in November, adding pressure on policymakers after President Xi Jinping signaled last week his desire to boost household consumption.
Traders are likely to monitor Gross Domestic Product (GDP) data due out on Thursday, which is expected to show New Zealand’s economy contracted 0.4% quarter-on-quarter in the third quarter. Meanwhile, a Westpac survey indicated that consumer confidence rose to a reading of 97.5 in the fourth quarter, from the previous quarter’s reading of 90.8, marking the highest level in three years, although it remains below averages over long term.
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 policy of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. The evolution of the Chinese economy tends to move the Kiwi because China is New Zealand’s largest trading partner. The bad news for the Chinese economy will likely mean fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor moving the NZD is dairy product 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 drive up bond yields, making investors more attractive to invest in the country and thus boosting the NZD. On the contrary, lower interest rates tend to weaken the NZD. The so-called rate differential, or what 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.
The release of macroeconomic data in New Zealand is 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 may 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 overall market risks to be low and are optimistic about growth. This usually translates into a more favorable 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.
