NZD/USD Price Forecast: Extends losing streak for fourth trading day
- NZD/USD extends its downside to near 0.5750 as the US Dollar clings to gains ahead of US PCE Inflation data.
- Fed dovish bets ease after upbeat revised US Q2 GDP data.
- The RBNZ is expected to cut interest rates in the policy meeting in October.
The NZD/USD pair extends its losing streak for the fourth trading day on Friday. The NZD/USD pair posts a fresh over five-month low around 0.5750 as the US Dollar (USD) holds onto gains on the back of a slight decrease in bets supporting a 50 basis points (bps) decline in interest rates by the Federal Reserve (Fed) by the year-end.
According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 50 bps by the year-end eased to 62% from 73.3% seen on Wednesday.
Fed dovish bets eased after the release of the revised United States (US) Q2 Gross Domestic Product (GDP) data published on Thursday. The data showed that the economy grew at a faster pace of 3.8%, compared to the preliminary estimate of 3.3%.
Going forward, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for August, which will be published at 12:30 GMT.
Meanwhile, the New Zealand Dollar (NZD) weakens as traders become increasingly confident that the Reserve Bank of New Zealand (RBNZ) will cut interest rates in the policy meeting next month.
NZD/USD refreshes five-month low around 0.5750 on Friday. The Kiwi pair slides far below the 200-day Exponential Moving Average (EMA), which trades around 0.5910, indicating that the overall trend is bearish.
The 14-day Relative Strength Index (RSI) declines to near 30.00, suggesting a strong bearish momentum.
Going forward, a slight recovery move by the pair towards the round-figure of 0.5800 would be utilized as a selling opportunity by investors for the downside move towards the April 11 low of 0.5730, followed by the round-level support of 0.5700.
In an alternate scenario, the Kiwi pair would rise towards the June 19 high of 0.6040 and the September 11 low of 0.6100 if it manages to return above the psychological level of 0.6000.
NZD/USD daily chart
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US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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