NZD/USD strengthens to near 0.5950 after RBNZ’s Hawkesby speech
- NZD/USD holds firm near 0.5945 in Thursday’s Asian session.
- Cooler US producer inflation boosts Fed rate cut bets, weighing on the US Dollar.
- RBNZ’s Hawkesby reiterates OCR seen at 2.5% by year-end.
The NZD/USD pair gains traction around 0.5945 during the Asian trading hours on Thursday. The New Zealand Dollar (NZD) edges higher against the Greenback on rising expectations that the US Federal Reserve (Fed) will deliver three rate cuts before the year's end. Later on Thursday, the US Consumer Price Index (CPI) for August will be in the spotlight.
An unexpected drop in US producer prices bolstered expectations that the US central bank will cut interest rates next week and will deliver three reductions this year. This could exert some selling pressure on the Greenback in the near term.
"The market has positioned for the Fed to ease in September and potentially ease three times this year," said Rodrigo Catril, currency strategist at National Australia Bank in Sydney. Meanwhile, Barclays analysts forecast three consecutive rate cuts by the Fed to conclude the year. They expect 25 basis points (bps) cuts in September, October, and December.
On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) Governor Christian Hawkesby on Thursday reiterated the Official Cash Rate (OCR) projected to reach 2.5% by the end of the year. Hawkesby further stated that the pace of rate reductions will depend on incoming data and the speed of the country’s economic recovery.
The RBNZ resumed rate cuts at its August meeting after pausing in July as the sputtering recovery eased concerns about an uptick in price pressures. Policymakers will continue to watch the second-round impacts of US tariff policies on both global growth and New Zealand businesses. Any signs of weakness in the New Zealand economy could drag the Kiwi lower against the USD.
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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