NZD/USD nears multi-month lows at 0.5800 on broad-based US Dollar strength
- The New Zealand Dollar extends losses against a stronger USD, nearing four-month lows at 0.5800.
- The US Dollar is outperforming its peers on Wednesday despite rising threats to the Fed's independence.
- On Thursday, New Zealand's Business Confidence and Capital Expenditure data will provide some guidance for the Kiwi.
The New Zealand Dollar is struggling on Wednesday against a stronger US Dollar. The pair depreciates about 0.60% so far, reaching weekly lows right above 0.5820 and approaching four-month lows, at 0.5800
The Greenback is outperforming its peers on Wednesday despite growing concerns about the Federal Reserve’s independence. Trump escalated his war against the bank this week, ordering the ousting of governor Lisa Cook, who rejected the order and announced a lawsuit against the president. More to come in the Trump-Fed saga.
Concerns about Fed's independence might limit US Dollar's rellies
The US president has been attacking the central bank relentlessly over the last few months, accusing it of being too slow in easing its monetary policy. Trump’s attempt to fire Cook is the latest of a series of attacks intended to influence the committee’s decisions, which are eroding the market confidence in the bank’s independence.
Regarding macroeconomic data, US figures released on Tuesday provided further support to the US Dollar. Durable Goods Orders decline was shallower-than-expected, and Consumer Confidence did not deteriorate as much as forecasted, which improved investors’ impression about the outlook of US consumption and industrial activity.
In New Zealand, investors will be looking to August’s Business Confidence and Private Capital Expenditure data to confirm the upbeat expectations triggered by the Retail Sales figures seen earlier this week. The Kiwi needs strong data to counter the dovish message from the latest RBNZ statement and help the pair to take some distance from current levels.
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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