- NZD/USD weakens around 0.6220 in the Asian session on Friday.
- New Zealand’s gloomy growth outlook and caution weigh on the Kiwi.
- Traders will be keeping an eye on US employment data for August on Friday.
The NZD/USD pair is trading with slight losses near 0.6220 during the Asian session on Friday. Caution ahead of key US employment data could provide some support to the US Dollar (USD). US Non-Farm Payrolls (NFP) for August will be in focus on Friday.
NZIER expects New Zealand’s gross domestic product (GDP) growth to remain weak over the coming year, contributing to a further reduction in inflation. The Reserve Bank of New Zealand (RBNZ) is expected to cut another interest rate in October on expectations that inflation will fall within the target range by the end of the year. This, in turn, could undermine the Kiwi.
In addition, renewed concerns about the economic slowdown in China and cautious sentiment are weighing on riskier assets such as the New Zealand Dollar (NZD). Analysts at Bank of America Global Research cut their GDP growth forecasts for China from 5.0% to 4.8%.
On the USD front, markets expect the US Federal Reserve (Fed) to start easing monetary policy in September. Markets are now pricing in a nearly 59% chance of a 25 basis point (bp) rate cut by the Fed in September, while the probability of a 50 bp reduction stands at 41%, according to the CME’s FedWatch tool.
All eyes will be on US jobs data for August, due on Friday. A disappointing result could lead the market to price in a 50 basis point (bp) rate cut in September. The dollar could face further selling pressure amid rising expectations of rate cuts by the Fed.
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.
