NZD/USD extends downside to near 0.5800 as traders brace for Powell’s Jackson Hole remarks
- NZD/USD trades in negative territory around 0.5805 in Friday’s early European session.
- Dovish rate cut from the RBNZ undermines the New Zealand Dollar.
- The attention will shift to the Fed’s annual Jackson Hole symposium later on Friday.
The NZD/USD pair remains under selling pressure near 0.5805 during the early European trading hours on Friday. The Reserve Bank of New Zealand’s (RBNZ) dovish tone exerts some selling pressure on the New Zealand Dollar (NZD) against the Greenback. All eyes will be on the speech from Federal Reserve (Fed) Chair Jerome Powell at the Jackson Hole symposium later on Friday.
As widely expected, the RBNZ has cut the Official Cash Rate (OCR) by 25 basis points (bps) to 3.0% at its August meeting on Wednesday. The New Zealand central bank signalled further reductions in the coming months as policymakers warned of domestic and global headwinds to growth.
It also projected a new rate track that suggests an OCR of 2.5% by March 2026, implying another two 25 bps reductions to come in this cycle. Markets are now pricing in nearly a 50% possibility of a move in October and over a 100% chance for November, according to Reuters.
Investors reassess rate cut wagers ahead of the highly anticipated speech from the Fed’s Powell for clues on the policy outlook. A dovish tilt from Powell could weigh on the Greenback and cap the downside for the NZD/USD pair. “Ahead of Chair Powell’s Jackson Hole remarks, markets appear overly hopeful for a dovish shift,” said Rajeev De Mello, chief investment officer at Gama Asset Management.
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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