NZD/USD treads water below 0.5670 with both currencies on the back foot
- The New Zealand Dollar hovers below 0.5670 against its US counterpart on Wednesday.
- Hopes of an RBNZ rate cut in December are acting as headwinds for NZD recovery.
- The US Dollar remains on the defensive after weak US employment figures.
The New Zealand Dollar is trading practically flat, right above 0.5650 against the US Dollar, with both currencies losing ground against their main peers on Wednesday. The Kiwi is failing to put a significant distance from the seven-month lows near 0.5600, as weak New Zealand macroeconomic data keeps providing reasons for the RBNZ to cut interest rates further in December.
On Tuesday, the RBNZ Inflation Expectations report showed that price projections for the fourth quarter remained steady at 2.8%, unchanged from the previous quarter, despite the higher consumer prices figures. CPI data released last week revealed that consumer inflation accelerated to a 3% yearly rate in Q3, its highest level in the year.
These numbers come after last week’s downbeat employment report, showing that job creation stalled in Q3, while the Unemployment Rate increased to its highest level in nine years, at 5.3%. Against this background, hopes that the New Zealand central bank will be forced to cut interest rates further before the year's end remain elevated, which keeps the Kiwi’s upside attempts limited.
The US Dollar, however, is failing to capitalise on NZD’s fragility, weighed down by weaknesses of its own. The US ADP Employment report showed that US businesses shed an average of 11,250 jobs per week in late October, boosting hopes of a Federal Reserve interest rate cut in December and undermining speculative demand for the Greenback.
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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