NZD/USD stalls below 0.5075 area, awaiting US GDP, PCE inflation data
- New Zealand Dollar's recovery against the USD halts ahead of the top of the weekly channel, at 0.5875.
- The Pair bounced from lows near 0.5800 amid US Dollar weakness after Fed Williams's dovish comments.
- Investors are awaitu¡ing the release of US GDP on Thursday and the PCE Price Index on Friday.
The New Zealand Dollar is trading practically flat against the US Dollar on Thursday, looking for direction below the top of the weekly trading range, at 0.5875, with investors looking from the sidelines ahead of US GDP data today and, more importantly, the PCE Prices Index data on Friday.
The pair bounced up from levels near 0.5800 on Wednesday, favoured by generalised US Dollar weakness after the New York Fed President, John Williams, left the door open for an interest rate cut in September.
Williams said that interest rates are likely to fall at some point and that every meeting is “live” for him, comments taken by the market as a token that a September rate cut is on the table.
Traders, however, remain wary of placing directional bets ahead of key US data releases, with a special interest in Friday’s PCE Prices Index, the Fed’s inflation gauge of choice, that might cement hopes of monetary easing next month.
Headline inflation is forecasted to have grown at a steady 2.6% pace in July, unchanged from the previous month, while the core PCE Price Index is seen ticking up to 2.9% year-on-year, from 2.8% in June.
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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