NZD/USD gathers strength above 0.6000, Fed rate decision in focus
- NZD/USD edges higher to near 0.6025 in Wednesday’s early Asian session.
- Reduced RBNZ rate cut bets support the New Zealand Dollar.
- The Fed is expected to keep interest rates steady at its June meeting on Wednesday.
The NZD/USD pair gathers strength to around 0.6025 during the early Asian session on Wednesday. The New Zealand Dollar (NZD) edges higher against the Greenback amid reduced rate cut expectations from the Reserve Bank of New Zealand (RBNZ). Later on Wednesday, the US Federal Reserve (Fed) interest rate decision will be in the spotlight.
Hotter inflation in New Zealand has fueled the case for the RBNZ to keep interest rates at 3.25% in July, which provides some support to the Kiwi. “May month selected price indexes are unequivocally hawkish. On balance, the monthly data has turned out to be more inflationary than we had expected,” said BNZ head of research Stephen Toplis.
The weaker-than-expected US economic data released on Tuesday weighs on the US Dollar (USD) and acts as a tailwind for the pair. US Retail Sales declined by 0.9% in May, compared to the 0.1% decrease (revised from +0.1%) recorded in April, according to the US Census Bureau. This reading came in below the market consensus of -0.7%.
On the other hand, the rising geopolitical tensions in the Middle East could boost the safe-haven currency like the USD. US President Donald Trump posted on his social media platform late Tuesday, calling for Iran’s “unconditional surrender.” Investors are concerned that the United States will participate in the Israel-Iran conflict.
All eyes will be on the Fed rate decision and press conference later on Wednesday. The US central bank is anticipated to leave the interest rate unchanged at the June meeting. Traders now see a nearly 80% possibility of a Fed rate cut in September, followed by another one in October, according to Reuters.
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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