NZD/USD strengthens above 0.5850 as Trump orders removal of Fed governor Cook
- NZD/USD gains traction to around 0.5860 in Tuesday’s early Asian session.
- Trump said he is removing Lisa Cook from the Fed board.
- The RBNZ’s dovish tone might cap the Kiwi’s upside.
The NZD/USD pair gains ground to near 0.5860 during the early Asian session on Tuesday. The US Dollar (USD) weakens against the New Zealand Dollar (NZD) amid concerns over Federal Reserve (Fed) independence after the report that US President Donald Trump says he is removing Fed Governor Lisa Cook.
Reuters reported early Tuesday that Trump said that he was removing Fed Governor Cook from her position on the Fed's board of directors. Trump made the announcement in a letter to Cook that he posted on social media.
Cook’s exit will allow Trump to tap a replacement, helping him to exert more control over Fed policy. Concerns about the central bank's independence could exert some selling pressure on the USD and act as a tailwind for the pair in the near term.
New Zealand’s Retail Sales rose 0.5% QoQ in the second quarter (Q2) versus a 0.8% increase in Q1, Statistics New Zealand reported Monday. This figure came in above market expectations of a 0.2% gain. Meanwhile, Retail Sales ex Autos climbed 0.7% for the same period, compared to a 0.4% gain in the previous period. The upbeat Retail Sales boost the Kiwi against the USD.
However, the Reserve Bank of New Zealand’s (RBNZ) dovish tone might cap the upside for the NZD. The New Zealand central bank cut the Official Cash Rate (OCR) by 25 basis points (bps) to 3.0% at its August meeting last week.
The RBNZ signalled further reductions in the coming months as policymakers warned of domestic and global headwinds to growth. Markets are now pricing in nearly a 50% possibility of a move in October and over a 100% chance for November, according to Reuters.
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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