NZD/USD extends the rally to near 0.6000 ahead of RBNZ rate decision
- NZD/USD gains momentum to near 0.6000 in Tuesday’s early Asian session.
- Investors remain concerned over the mounting US national deficit, which weighs on the US Dollar.
- The RBNZ is set to cut interest rates for the sixth consecutive meeting on Wednesday.
The NZD/USD pair extends its upside to around 0.6000 during the early Asian session on Tuesday. The US Dollar (USD) edges lower against the New Zealand Dollar (NZD) amid renewed trade tensions and growing concerns about the US fiscal outlook. The Reserve Bank of New Zealand (RBNZ) interset rate decision will be in the spotlight on Wednesday.
Despite US President Donald Trump delaying the imposition of tariffs on Europe, investors remain concerned over the mounting US national deficit. This, in turn, continues to undermine sentiment towards US assets and drag the USD lower broadly.
The attention will shift to the debate in the US Senate on Trump's tax-cut bill that is expected to add to the debt pile in the world's largest economy. Investors await the US Conference Board’s Consumer Confidence report, which is due later on Tuesday. Also, Durable Goods Orders and the Dallas Fed Manufacturing Index will be released.
The RBNZ is expected to lower the Official Cash Rate (OCR) by 25 basis points (bps) to 3.25% at its May meeting on Wednesday, according to Bloomberg. The New Zealand central bank is open to further easing as US trade barriers dim the economic outlook, which might weigh on the Kiwi. “We see the RBNZ’s OCR profile being revised down by around 20 basis points to around 2.9% by the end of 2025,” said Kelly Eckhold, chief economist at Westpac in Auckland.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
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