New Zealand Dollar steadies near its lows as RBNZ hike bets keep building
- NZD/USD steadies near 0.5650, its floor for a third straight session.
- Markets price about an 80% chance of an RBNZ hike to 3% on October 28.
- New Zealand votes on November 7, ten days after the RBNZ decides.
Five straight weekly declines have left NZD/USD at its lowest since late June. Monday's low near 0.5650 matched Thursday's and Friday's, and the pair closed just above it with a small gain. Markets now price about an 80% chance that the Reserve Bank of New Zealand (RBNZ) raises its Official Cash Rate (OCR) to 3% from 2.75% on October 28, against roughly a one-in-three chance right after the September 2 hike.
The RBNZ decides ten days before New Zealand votes
RBNZ Governor Breman said on September 22 that higher Crude Oil prices could push near-term inflation above what the RBNZ assumed in September, and hike bets have built since. Second-quarter GDP beat forecasts on September 17 and revisions lifted the first quarter, which had already pushed the odds above even. The RBNZ's own rate track, published on September 2, pointed to a pause in October and a hike in December. New Zealand's third-quarter Consumer Price Index (CPI) lands on October 21, one week before the decision, and the general election follows on November 7. The RBNZ gets a week with the inflation number and voters get ten days with the RBNZ's decision.
A hike alone won't lift the Kiwi if the Fed moves on the same day. The Fed announces about 17 hours after the RBNZ, and futures lean toward a quarter-point increase from 3.75%-4.00%, which would leave the gap between the two central banks exactly where it is. Swaps put the OCR near 4% at the end of the cycle, still below where the Fed's range sits now, which is why the Kiwi has kept falling while the RBNZ pricing climbed.
US numbers will do more work than New Zealand's before Friday
New Zealand's August building permits come out on Wednesday at 21:45 GMT after a -4.3% fall in July, and ANZ-Roy Morgan consumer confidence follows on Thursday at 21:00 GMT, previously 98. Neither is likely to shift an October hike that markets already rate at four-in-five.
The Kiwi's chance at relief is in the US data. Core Personal Consumption Expenditures (PCE) inflation is forecast at 3.4% YoY on Wednesday, the Institute for Supply Management (ISM) manufacturing survey at 54.9 on Thursday, and September payrolls at 84K on Friday against 162K in August. It's possible a weak jobs count talks the Fed out of October, though the inflation forecast two days earlier points the other way.
Levels to watch into Friday's payrolls
Resistance: 0.5700 has capped every session since the September 23 break, Monday included. Above that, 0.5750 is where the September 22 rebound stopped.
Support: 0.5650 held on Thursday, Friday and Monday. Beneath 0.5650, the late-June low just above 0.5600 is the only stop before 0.5550.
Bias: Short below 0.5700, targeting 0.5600 and then 0.5550. The daily Stochastic Relative Strength Index (Stoch RSI) reading has stayed in single digits since mid-September, so the lean allows for a bounce toward 0.5700 without changing. A daily close above 0.5750 cancels it.
NZD/USD daily chart
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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