NZD/USD clings to gains near one-week top, around 0.5830 amid a bearish USD
- NZD/USD scales higher for the fifth straight day amid the lack of USD buying interest.
- The US ADP report reaffirmed bets for two more Fed rate cuts and weighs on the USD.
- A positive risk tone further undermines the buck and benefits the risk-sensitive Kiwi.
The NZD/USD pair attracts some dip-buyers near the 0.5800 mark during the Asian session on Thursday and turns positive for the fifth consecutive day. Spot prices currently trade around the 0.5825-0.5830 region, just a few pips below the weekly high, and look to build on the recent recovery from the lowest level since April 10, touched last week, amid a bearish US Dollar (USD).
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to capitalize on the overnight bounce from a one-week low amid expectations that the US Federal Reserve (Fed) will cut rates two more times this year. The bets were lifted by Wednesday's disappointing release of the US ADP report on private-sector employment, which pointed to signs of a softening labor market.
In fact, private companies shed 32K jobs in September, marking the biggest decline since March 2023. Adding to this, the August payrolls number was also revised down to show a loss of 3K jobs compared to an increase of 54K reported initially. This offsets a slight improvement in the Institute for Supply Management's (ISM) Purchasing Managers' Index (PMI), which rose from 48.7 previous to 49.1 in September.
Meanwhile, investors seem relatively unfazed by a partial US government shutdown, which is evident from a generally positive tone around the equity markets. This is seen as another factor undermining the safe-haven buck and benefiting the risk-sensitive Kiwi. That said, rising bets for more interest rate cuts by the Reserve Bank of New Zealand (RBNZ) could act as a headwind for the NZD/USD pair and cap gains.
Hence, it will be prudent to wait for some follow-through buying beyond the 200-day Simple Moving Average (SMA), around the 0.5840 region, before confirming that spot prices have bottomed out. This week's US macro data, including the Weekly Initial Jobless Claims on Thursday, could be delayed amid the US government shutdown, leaving the USD and the NZD/USD pair at the mercy of speeches from Fed officials.
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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