- NZD/USD depreciates due to market caution ahead of August’s US Personal Consumption Expenditures Price Index data.
- The upside of the US Dollar could be limited due to the dovish Fedspeak.
- The ANZ Roy Morgan Consumer Confidence Index rose to 95.1 points in September, from 92.2 prior.
NZD/USD retraces its recent gains, trading around 0.6300 during the European hours on Friday. This downside is attributed to the improved US Dollar (USD) amid market caution ahead of the US Personal Consumption Expenditures (PCE) Price Index data for August. The Fed’s preferred inflation indicator is scheduled to be released later in the North American session.
On the data front, the US Gross Domestic Product Annualized increased at a rate of 3.0% in the second quarter, as estimated, according to the US Bureau of Economic Analysis (BEA) on Thursday. Meanwhile, the GDP Price Index rose 2.5% in the second quarter.
Additionally, US Initial Jobless Claims for the week ending September 20 were reported at 218K, according to the US Department of Labor (DoL). This figure came in below the initial consensus of 225K and was lower than the previous week’s revised number of 222K (previously reported as 219K).
However, the US Dollar might have received downward pressure following the dovish remarks from the US Federal Reserve (Fed) officials. According to Reuters, Fed Governor Lisa Cook stated on Thursday that she supported last week’s 50 basis point (bps) interest rate cut, citing increased “downside risks” to employment.
On the Kiwi front, the ANZ Roy Morgan Consumer Confidence Index rose for the third consecutive month, reaching 95.1 points in September, up from the previous reading of 92.2. This marked the highest reading since January 2022.
However, the New Zealand Dollar (NZD) is under pressure due to growing expectations that the Reserve Bank of New Zealand (RBNZ) will cut interest rates again in October, with markets pricing in a 67% probability of a 50 basis point rate cut. Investors currently anticipate the 5.25% cash rate to decline to 2.83% by the end of 2025.
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.
