NZD/USD bounces up to fresh highs at 0.5780 amid US Dollar’s weakness
- The New Zealand Dollar hit a fresh monthly high at 05780 against the USD.
- Fed monetary easing expectations are keeping the US Dollar rallies limited.
- The RBNZ, on the contrary, might have reached the end of its easing cycle.
The New Zealand Dollar maintains its bullish trend against its US counterpart intact. Downside attempts have been contained above 0.5760, and the pair resumed its uptrend from mid-November lows, reaching monthly highs at 0.5780, with October 6 and 29 highs, in the 0.5800 area coming into focus.
The pair is on track to close the week with a nearly 3% rally over the last two weeks, fuelled by overall US Dollar weakness, as traders brace for a 25 basis points interest rate cut by the US Federal Reserve next week, and for two or three more rate cuts next year.
US employment data has boosted hopes of Fed easing
The unexpected decline in net jobs reported by the ADP Employment Change cemented hopes of a Fed interest rate cut next week. The key Nonfarm Payrolls report for November, which should be released on Friday, will be delayed until the second week of December due to a record-long US government shutdown that has delayed official data.
In New Zealand, the calendar has been light this week, but the Kiwi remains supported by the Reserve Bank of New Zealand’s (RBNZ) hawkish monetary policy stance. The bank cut rates by 25 basis points at their November meeting, but signalled the end of the easing cycle, which sent the NZD rallying against its main peers.
On Tuesday, Anna Breman, the new RBNZ Governour, made her first public appearance at New Zealand’s Parliament to assure that she will be “laser focused on inflation”. These comments endorse the hawkish view and the monetary policy divergence with the US Federal Reserve, which is supporting the New Zealand Dollar’s rally.
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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