NZD/USD retreats further from YTD peak, slides below 0.5800 ahead of Fed
- NZD/USD attracts some sellers amid a modest USD bounce from a multi-month low.
- Fed rate cut bets should cap any meaningful USD gains and lend support to the pair.
- Traders might also opt to wait for the outcome of a two-day FOMC policy meeting.
The NZD/USD pair meets with some supply on Wednesday and moves away from the year-to-date (YTD) top, around the 0.5830 region touched the previous day. The selling bias picks up pace during the early European session and drags spot prices below the 0.5800 mark in the last hour.
The US Dollar (USD) gains some positive traction and for now, seems to have snapped a three-day losing streak to a five-month low, which, in turn, is seen as a key factor exerting downward pressure on the NZD/USD pair. The intraday USD uptick could be attributed to some repositioning trade ahead of the key central bank event risk – the outcome of a two-day FOMC meeting. Adding to this, the risk of a further escalation of geopolitical tensions in the Middle East further benefits the safe-haven buck and contributes to driving flows away from the perceived riskier Kiwi.
Any meaningful USD appreciation, however, seems elusive in the wake of the growing acceptance that the Fed would lower borrowing costs several times this year amid concerns over a tariff-driven US economic slowdown. Hence, the market focus will remain glued to the Fed's updated economic projections, which include the so-called do pot. Apart from this, Fed Chair Jerome Powell's remarks would be scrutinized for cues about the future rate-cut path, which, in turn, will influence the USD price dynamics and help in determining the near-term trajectory for the NZD/USD pair.
Hence, it will be prudent to wait for strong follow-through selling before confirming that the currency pair's recent move-up witnessed over the past two weeks or so has run its course and positioning for deeper losses. Even from a technical perspective, this week's sustained breakout above the 0.5760 strong horizontal barrier favors bullish traders and supports prospects for the emergence of some dip-buying. This, in turn, should help limit the downside for the NZD/USD pair.
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.