NZD/USD is recovering some ground lost around 0.5605 during the early European session on Thursday. The upside for the pair may be limited, as the impending interest rate cut from the Reserve Bank of New Zealand (RBNZ) may weigh on New Zealand (NZD) against the US Dollar (USD). The US September employment report will take center stage later Thursday.
The People’s Bank of China decided on Thursday to leave key loan interest rates unchanged on Thursday. The loan risk coverage ratio for one year and five years was 3.00% and 3.50%, respectively.
New Zealand’s unemployment rate rose to 5.3% in the September quarter, indicating a weak labor market. This, coupled with a faltering domestic economy and weak inflation expectations, signaled underlying weakness in the economy and boosted the RBNZ’s bets on cutting interest rates. The possibility of a policy rate cut by the Reserve Bank of New Zealand could lead to a decline in the New Zealand dollar in the near term.
The Federal Open Market Committee (FOMC) released minutes from its October meeting on Wednesday, indicating a split among officials on whether to cut interest rates. Many participants were in favor of lowering the target range, while some said they “could also have supported” keeping interest rates unchanged, and “many were against” any cut.
The delayed September US employment report from the Bureau of Labor Statistics (BLS) will finally be published after the government shutdown. Economists expect the report to show that the United States added about 50,000 new jobs in September. Average hourly earnings are expected to rise 0.3% month-over-month in September, while the unemployment rate is expected to remain at 4.3%.
This report could provide clues about the possibility of an interest rate cut next month. In the event of a weaker than expected result, it could undermine the dollar and act as a tailwind for the pair.
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.
