NZD/USD edges up to day highs near 0.5820 but remains within previous ranges
- The New Zealand Dollar rises to a session high near 0.5830, but remains below Thursday's highs, at 0.5842
- A moderately positive market mood is supporting the risk-sensitive NZD and weighing on the US Dollar.
- In New Zealand, hopes of further RBNZ rate cuts this year are weighing on Kiwi's rallies.
The New Zealand Dollar is nudging higher at Friday’s early European trading session. The pair has reached fresh session highs a few pips shy of 0.5830. The immediate bias is positive, but price action remains trapped within Thursday’s ranges, reflecting a frail upside momentum.
A moderate risk appetite is supporting the Kiwi, and weighing on the safe-haven US Dollar, which is also suffering by the US Government shutdown and further evidence of a cooling labour market, which is pressuring the Fed to adopt a looser monetary policy.
US employment data keeps showing signs of a cooling labour market
With the US federal government data releases muted, the US Challenger Job Cuts gathered particular interest on Thursday, and the final readings were mixed. Layoffs declined to 54,064 in September, from 85,979 in August, but hiring plans showed a total of 204,939 this year, which is the lowest year-to-date reading since 2009, in the midst of the financial crisis.
Later on the day. Dallas Fed president, Lorie Logan, provided a fresh boost to the USD, putting into question further rate cuts. Investors, however, remain convinced that the US central bank will cut rates in October and, highly likely, also in December, which is keeping the US Dollar’s rallies limited, at least for now.
In New Zealand, the calendar has been light this week, but market expectations that the RBNZ will be forced to ease its monetary policy further to boost a faltering economic growth are acting as headwinds for a significant Kiwi recovery.
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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