- NZD/USD is trading lower around 0.6090 in early Asian session on Friday.
- The odds of Fed rate cuts are increasing after the softer-than-expected US CPI inflation report for June.
- RBNZ’s dovish monetary policy statement undermines the New Zealand Dollar against the USD.
The NZD/USD pair trimmed gains near 0.6090 during the early Asian session on Friday. The pair lost traction after retreating from the previous session’s high of nearly 0.6135. Later on Friday, investors will be keeping an eye on the US June Producer Price Index (PPI) and the preliminary Michigan Consumer Sentiment indicator.
Data released by the US Bureau of Labor Statistics (BLS) on Thursday showed that the US Consumer Price Index (CPI) rose 3.0% year-on-year in June, compared with a 3.3% increase in May. This reading was below the market consensus of 3.1%. Meanwhile, the annual core CPI, which excludes volatile food and energy prices, rose 3.3% year-on-year in June, below the forecast and the 3.4% increase in May. On a monthly basis, the CPI decreased 0.1%, while the core CPI increased 0.1%.
Softer US inflation data has triggered expectations that the US would cut its borrowing costs this year, which could weigh on the US dollar (USD) in the near term. Investors are now pricing in a nearly 89% chance of a rate cut at the Fed’s September meeting, up from 73% on Wednesday and around 50% a week ago, according to the CME Group’s FedWatch tool.
On the other hand, a less hawkish stance from the Reserve Bank of New Zealand (RBNZ) will likely put some selling pressure on the New Zealand Dollar (NZD) for the time being. The central bank left its Official Cash Rate (OCR) unchanged for the eighth consecutive meeting at 5.5% on Wednesday, as expected but hinted at possible rate cuts in August if inflation eases as expected.
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.
