The NZD/USD pair rose to around 0.5665 during the early Asian session on Wednesday. The New Zealand Dollar (NZD) rose against the US Dollar (USD) following the Reserve Bank of New Zealand’s (RBNZ) interest rate decision.
As widely expected, the Reserve Bank of New Zealand decided to cut the official cash rate (OCR) by 25 basis points to 2.25% at its November meeting on Wednesday. The New Zealand dollar is attracting some buyers in immediate reaction to the Reserve Bank of New Zealand’s interest rate decision. The move came amid signs of slowing economic growth, including a weak housing market. Traders will be closely watching the press conference at 2.00 GMT. Policymakers were expected to provide some thoughts on their interest rate decision.
The lower-than-expected US economic reports released on Tuesday affected the dollar. Data from the US Census Bureau showed that US retail sales rose 0.2% month-on-month in September, versus a 0.6% increase previously. This figure was lower than market expectations of 0.4%.
Meanwhile, private sector employers lost an average of 13,500 jobs during the four weeks ending November 8, Automatic Data Processing (ADP) showed on Tuesday. This reading indicates further signs of weakness in the US labor market, strengthening expectations of an interest rate cut by the US Federal Reserve in December and dragging the US dollar lower. Traders now place a roughly 85% probability of the Fed cutting by a quarter of a percentage point in December, up from 80% earlier this week, according to the CME FedWatch tool.
US durable goods orders, weekly initial jobless claims, Chicago PMI, and the Fed’s Beige Book will be published later on Wednesday. If reports show a stronger than expected result, it could lift the dollar and act as a headwind 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 risk 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.
