New Zealand Dollar declines to near 0.5950 as US PCE data lift Fed rate hike bets
- NZD/USD posts modest losses near 0.5950 in Thursday’s early Asian session.
- The US July PCE rose 0.2% on the month and 3.7% on the year.
- Jackson Hole symposium event will be in the spotlight on Friday.
The NZD/USD pair trades with mild losses around 0.5950 during the early Asian session on Thursday. The US Dollar (USD) strengthens against the New Zealand Dollar (NZD) as US inflation data lifted expectations of a Federal Reserve (Fed) rate hike. All eyes will be on the Jackson Hole Symposium event later on Friday.
The Personal Consumption Expenditures (PCE) Price Index rose 3.7% in the 12 months through July, unchanged from June and slightly above the 3.6% estimate, according to the US Commerce Department on Wednesday. On a monthly basis, the PCE increased 0.2% after falling 0.1% in June, above the consensus of a 0.1% growth.
Meanwhile, the core PCE inflation, the Fed’s preferred inflation gauge, held steady at 3.3% YoY in July, in line with expectations.
This report kept the market's expectation for a Fed rate hike by year-end alive, though Chairman Kevin Warsh's upcoming speech at Jackson Hole "will be the ultimate test," Westpac economist Ryan Wells said.
Markets are now pricing in nearly a 38% chance of a 25 basis points (bps) Federal Reserve (Fed) rate hike in September, compared with 36% before the data, according to the CME FedWatch tool.
Traders await the speech from Fed Chairman Kevin Warsh at the Jackson Hole symposium on Friday. This event could offer some clues about the outlook for US interest rates.
RBNZ hike to 2.75% seen as virtually fully priced ahead of September decision
Brown Brothers Harriman notes that attention is now firmly on the next Reserve Bank of New Zealand policy meeting, with Elias Haddad highlighting that “the next RBNZ policy decision, which also includes a fresh Monetary Policy Statement, is on September 2 and a 25bps back-to-back hike to 2.75% is virtually fully priced-in.” This underscores market conviction that the central bank will continue its tightening cycle, even as recent data have pointed to some softness in headline retail activity.
Technical Analysis: Positive outlook of NZD/USD prevails above the 100-day SMA
In the daily chart, NZD/USD keeps a constructive bullish tone as spot holds above the 100-day simple moving average (SMA) and the Bollinger Bands’ middle line. Price is approaching the upper Bollinger Band, suggesting the latest advance is stretching toward the upper volatility envelope, while the Relative Strength Index (14) around 61.7 stays in positive territory without yet signaling overbought conditions.
On the topside, immediate resistance is located at the upper Bollinger Band at 0.5985, where buyers could start to encounter profit-taking. On the downside, initial support emerges at the Bollinger middle band at 0.5905, ahead of a deeper cushion at the 100-day SMA near 0.5845, with the lower Bollinger Band around 0.5830 reinforcing the broader demand zone on pullbacks.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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