NZD/USD extends the decline to near 0.5750 ahead of US PCE inflation release
- NZD/USD extends its downside to near 0.5760 in Friday’s early Asian session.
- US GDP rose by an upwardly revised rate of 3.8% in Q2, stronger than 3.3% initially reported.
- New Zealand GDP figures were weaker than expected, fueling bets of additional RBNZ rate reductions.
The NZD/USD pair attracts some sellers to around 0.5760 during the early Asian session on Friday. The stronger-than-expected US economic data provide some support to the Greenback against the New Zealand Dollar (NZD). All eyes will be on the US August Personal Consumption Expenditures (PCE) Price Index data later on Friday.
The US economy grew at an annual rate of 3.8% in the second quarter (Q2), the US Bureau of Economic Analysis' (BEA) final estimate showed on Thursday. This reading came in above the previous estimate and the estimation of 3.3%. The US Dollar (USD) edges higher in an immediate reaction to the upbeat US economic report.
Meanwhile, traders continue to assess mixed signals from Federal Reserve (Fed) officials. Kansas City Fed President Jeffrey Schmid said the rate cut was needed to help ensure that the job market remains in a good place.
Chicago Fed President Austan Goolsbee noted that he was not eager to do a lot more policy easing while inflation is above target and moving the wrong way. Fed Governor Stephen Miran, the Fed's newest policymaker, preferred a more aggressive 0.50% cut to prevent labor market collapse.
On the Kiwi front, Anna Breman has been appointed the new Reserve Bank of New Zealand (RBNZ) Governor and will begin her role in early December. Acting Governor Christian Hawkesby will preside over the upcoming October and November meetings, where additional rate cuts are likely, as the recent New Zealand Gross Domestic Product (GDP) came in weaker than expected. The growing expectation of an aggressive rate cut at the RBNZ’s upcoming meeting next month might undermine the NZD against the USD in the near term.
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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