NZD/USD declines below 0.5800 ahead of US employment data, Fed rate decision
- NZD/USD softens to near 0.5775 in Tuesday’s early Asian session.
- The Fed is expected to lower interest rates at the end of its two-day meeting on Wednesday.
- China’s trade surplus hit its largest since June as Exports surged more than Imports.
The NZD/USD pair declines to around 0.5775 during the early Asian session on Tuesday. The US Dollar (USD) strengthens against the New Zealand Dollar (NZD) as markets brace for a hawkish cut from the US Federal Reserve (Fed) on Wednesday. Traders will take more cues from the delayed US jobs data later on Tuesday ahead of the Fed’s policy meeting.
The US Fed is widely expected to lower its benchmark rate by a quarter percentage point at its December meeting on Wednesday. This would mark the Fed’s third consecutive rate reduction this year, following the September and October cuts, bringing the federal funds rate to a range of 3.50%-3.75%.
Luke Tilley, chief economist for Wilmington Trust, anticipates the US central bank will cut rates on Wednesday and believes Fed Chair Jerome Powell will frame a rate cut the same way he did at the last press conference. A hawkish tone from the Fed officials could lift the Greenback and act as a headwind for the pair in the near term.
China's trade surplus hit a 5-month high, the National Bureau of Statistics of China revealed on Monday. China’s Trade Surplus came in at 111.68B, compared to 90.07B in October, widening more than the 100.2B expected. A substantial China Trade Surplus can be viewed as a sign of national economic strength and provide some support to the China-proxy Kiwi, as China is a major trading partner for New Zealand.
Later in the day, the US ADP Employment Change four-week average and JOLTS Job Openings reports for September and October will be in the spotlight. Any surprise upside for the ADP Employment Change four-week average and JOLTS Job Openings data could help limit the USD’s losses.
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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