NZD/USD maintains position near 0.5950 ahead of US NFP Benchmark Revision
- NZD/USD remains stronger amid rising odds of a bumper Fed rate cut in September.
- Traders await the US Nonfarm Payrolls Benchmark Revision for guidance on the Fed rate cut size.
- The New Zealand Dollar may face challenges as the RBNZ may deliver another rate cut in October.
NZD/USD extends its winning streak for the third consecutive session, trading around 0.5950 during the Asian hours on Tuesday. The pair appreciates as the US Dollar (USD) struggles after last week’s weaker-than-expected August jobs data has bolstered expectations that the US Federal Reserve (Fed) may deliver a bumper 50-basis-point interest rate cut in September.
The CME FedWatch tool indicates a pricing in nearly 88% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from 86% a week ago, with nearly 12% odds of a potential 50 bps reduction this month.
Traders will likely watch the US Nonfarm Payrolls Benchmark Revision due later in the day. It is worth noting that in August 2024, the BLS released the preliminary annual benchmark revisions with 818,000 new jobs added, fewer jobs than originally reported in the 12 months through March 2024. In response, the Fed lowered the policy rate by 50 basis points (bps) in September 2024, bringing the fed funds rate to 5% from 5.5%.
Read full article: Will Nonfarm Payrolls revisions hint at a 50 bps Fed cut next week?
Traders will turn their focus on two key inflation reports from the United States (US) that could shape the interest rate outlook. The August US Producer Price Index (PPI) is scheduled for release on Wednesday, with expectations that the headline PPI for August to rise 3.3% year-on-year, while the core measure is projected to increase 3.5% over the same period. Focus will shift toward Thursday’s Consumer Price Index (CPI).
However, the NZD/USD pair may face challenges as the New Zealand Dollar (NZD) could receive downward pressure amid rising expectations of another rate cut by the Reserve Bank of New Zealand (RBNZ) in October, following August’s decision of a 25-basis-point rate cut. The dovish sentiment is strengthened due to the growth risks that appear after a decline in second-quarter consumer spending.
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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