NZD/USD hangs near three-week low, around mid-0.5800s amid modest USD uptick
- NZD/USD meets with a fresh supply on Tuesday amid the emergence of some USD dip-buying.
- Bets for more rate cuts by the RBNZ undermine the NZD and further exert pressure on the pair.
- Dovish Fed expectations and positive risk tone might cap the USD and lend support to the Kiwi.
The NZD/USD pair struggles to capitalize on the previous day's bounce from a technically significant 200-day Simple Moving Average (SMA) and attracts fresh sellers during the Asian session on Tuesday. Spot prices currently trade around mid-0.5800s, just a few pips above a three-week low touched on Monday.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, finds some support near the 97.00 mark and, for now, seems to have stalled the previous day's modest pullback from an over one-week high. A hawkish assessment of Federal Reserve (Fed) Chair Jerome Powell's remarks last Wednesday acts as a tailwind for the buck, which, in turn, is seen as a key factor exerting pressure on the NZD/USD pair.
The New Zealand Dollar (NZD), on the other hand, is pressured by rising bets for more interest rate cuts by the Reserve Bank of New Zealand (RBNZ), bolstered by the disappointing GDP print released last week. In fact, Statistics New Zealand reported that the economy contracted by 0.9% QoQ in the second quarter, reversing a 0.8% rise recorded during the March quarter and missing consensus estimates for a 0.3% drop.
Any meaningful USD appreciation, however, seems elusive amid firming expectations that the US central bank will cut interest rates two more times by the end of this year. Apart from this, a generally positive tone around the equity markets could cap the upside for the safe-haven buck. This, along with easing US-China trade tensions, could offer some support to the risk-sensitive Kiwi and limit losses for the NZD/USD pair.
Traders might also opt to move to the sidelines ahead of Fed Chair Jerome Powell's scheduled speech later during the North American session. This further makes it prudent to wait for a sustained break and acceptance below the 200-day SMA before positioning for an extension of the NZD/USD pair's recent rejection slide from the 0.6000 psychological mark, or a nearly two-month high touched last week.
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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