NZD/USD remains limited below 0.5860 against a firmer US Dollar
- New Zealand Dollar rebound finds resistance at 0.5860 and dips to fresh lows below 0.5845.
- The US Dollar maintains its firm tone ahead of a slew of Fed speakers.
- Weak New Zealand's macroeconomic figures are limiting the Kiwi's upside attempts.
New Zealand Dollar’s attempt to bounce up from two-week lows at 0.5845, seen during the early Asian session, has been capped at 0.5860, and the pair retreated again ahead of the European session opening, returning to 0.5950.
Looking at it in perspective, the pair remains vulnerable after having depreciated nearly 2.5% after last week’s knee-jerk reaction. Earlier today, the People’s Bank of China kept its benchmark one-year prome rate on holsd at 3%, as widely expected, but the impact on the Kiwi was minimal.
The New Zealand Dollar remains on the defensive amid the cautious market sentiment and a mildly positive US Dollar trend on Monday, as investors await a slew of Fed speakers this week to procicde firther clues on the central bank’s near-term monetary policy plans.
The main focus today will be on Stephen Miran, US President Trump’s new appointment to the board. Miran will try to defend his independence as a policymaker and explain the reasons for dissenting with the committee, opting for a 50 basis points rate cut last week.
In New Zealand, the downbeat Gross Domestic Product data and the widening trade deficit boosted concerns about the country’s economic outlook. These figures put further pressure on the Reserve Bank of New Zealand to ease its monetary policy further and are keeping New Zealand Dollar's upside attempts limited.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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