The New Zealand dollar maintains its upward trend against its US counterpart. Downside attempts above 0.5760 were contained, and the pair resumed its uptrend from the mid-November lows, reaching monthly highs at 0.5780, with the October 6-29 highs in focus in the 0.5800 area.
The pair is on track to close the week up about 3% over the past two weeks, driven by general weakness in the US dollar, as traders prepare for a 25 basis point interest rate cut by the US Federal Reserve next week, and for two or three more interest rate cuts next year.
US employment data raised hopes for Fed easing
The unexpected decline in net jobs announced by the US Employment Sector (ADP) employment report has raised hopes for a Federal Reserve rate cut next week. The key November nonfarm payrolls report, which is scheduled to be released on Friday, will be delayed until the second week of December due to a record-long US government shutdown that delayed official data.
In New Zealand, the calendar was light this week, but the New Zealand dollar remains supported by the Reserve Bank of New Zealand’s (RBNZ) hawkish monetary policy stance. The bank cut interest rates by 25 basis points at its November meeting, but signaled the end of its easing cycle, sending the New Zealand dollar higher against its major counterparts.
On Tuesday, Anna Breyman, the new Reserve Bank of New Zealand governor, made her first appearance before New Zealand’s parliament to confirm that she would be “strongly focused on inflation”. These comments support the hawkish view and monetary policy divergence with the US Federal Reserve, which supports the rise of the New Zealand dollar.
Frequently asked questions about the New Zealand dollar
The New Zealand Dollar (NZD), also known as the Kiwi, is a popular currency among investors. Its value is widely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some unique characteristics that could make the New Zealand dollar move as well. The performance of the Chinese economy tends to move the New Zealand dollar because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely mean New Zealand’s exports to the country will decline, affecting the economy and therefore its currency. Another factor that affects the New Zealand dollar is dairy prices as the dairy industry is New Zealand’s main export. Higher dairy prices boost export income, which contributes positively to the economy and therefore the New Zealand dollar.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain inflation between 1% and 3% over the medium term, with a focus on keeping it near the 2% midpoint. To this end, the Bank sets an appropriate level of interest rates. When inflation is very high, the Reserve Bank of New Zealand will increase interest rates to cool the economy, but this move will also cause bond yields to rise, making it more attractive for investors to invest in the country and thus strengthening the New Zealand dollar. Conversely, low interest rates tend to weaken the New Zealand dollar. The so-called spread, or how New Zealand’s interest rates compare or are expected to compare to those set by the US Federal Reserve, can also play a major role in moving the NZD/USD pair.
New Zealand’s macroeconomic data releases are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment, and high confidence, is good for the New Zealand dollar. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength is accompanied by higher inflation. Conversely, if economic data is weak, the value of the New Zealand dollar is likely to decline.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk, or when investors view broader market risks as low and are optimistic about growth. This tends to lead to a more positive outlook for commodities and so-called “commodity currencies” such as the New Zealand. Conversely, the New Zealand dollar tends to weaken in times of market turmoil or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.
