New Zealand Dollar (NZD) extends decline on dovish RBNZ
- The New Zealand Dollar weakens in Thursday’s early Asian session.
- RBNZ’s dovish stance continues to undermine the Kiwi.
- Investors await the US data for fresh impetus, including Retail Sales, Initial Jobless Claims and Philly Fed Manufacturing Index.
The New Zealand Dollar (NZD) remains on the defensive on Thursday. The dovish stance of the Reserve Bank of New Zealand (RBNZ) after a surprise rate cut on Wednesday has exerted selling pressure on the Kiwi as the easing cycle came much sooner than expected.
Nonetheless, further confirmation of the downward path of US inflation has triggered the expectation of a Federal Reserve (Fed) interest rate cut in September. This, in turn, might drag the US Dollar (USD) lower and cap the downside for NZD/USD. Later on Thursday, traders will keep an eye on US Retail Sales, weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Industrial Production.
Daily Digest Market Movers: New Zealand Dollar remains vulnerable after the RBNZ’s dovish move
- RBNZ Governor Adrian Orr said early Thursday that the central bank is maintaining a suitably restrictive policy stance and is likely looking at gauging when to enact future rate reductions.
- RBNZ board members decided to cut its Official Cash Rate (OCR) by 25 basis points (bps) from 5.50% to 5.25%. The market participants expected a rates-on-hold decision.
- Board members agreed that policy will need to remain restrictive for some time to ensure that domestic inflationary pressures continue to decline, according to the minutes of the RBNZ interest rate meeting.
- During the press conference, RBNZ’s Orr said that he is confident inflation back in its target band can commence re-normalising rates. Orr further stated that the central bank considered a range of moves; the consensus was for 25 bps.
- The US headline Consumer Price Index (CPI) increased 2.9% YoY in July, compared to a rise of 3% in June, below the market consensus. The Core CPI climbed 3.2% YoY following a rise of 3.3% seen in July, in line with the market forecast.
Technical Analysis: New Zealand Dollar maintains a negative outlook
The New Zealand Dollar trades in negative territory on the day. The bearish outlook of the NZD/USD pair remains intact as the pair faces rejection around the key 100-day Exponential Moving Average (EMA) and the descending trendline around 0.6050 on the daily chart. The 14-day Relative Strength Index (RSI) points lower below the 50-midline, suggesting lingering bearish pressure.
The crucial resistance level for NZD/USD appears at 0.6050, the key 100-day EMA and the descending trendline. If the price manages to break above this level, it would indicate the possibility of further upside to 0.6077, the upper boundary of the Bollinger Band. Further north, the next barrier emerges at 0.6154, the high of July 8.
On the downside, a breach of the 0.6000 psychological level would see a drop to 0.5930, a low of August 2. Extended losses will see the next contention level around 0.5857, the lower limit of the Bollinger Band and a low of July 29.
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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