NZD/USD jumps to near 0.6000 as risk sentiment improves with US elections underway
- NZD/USD moves higher to near 0.6000 amid upbeat market sentiment.
- Traders see a tight competition between Kamala Harris and Donald Trump for the US presidential elections.
- Investors expect the RBNZ to reduce its interest rates again by 50 bps on November 27.
The NZD/USD pair climbs to near the psychological resistance of 0.6000 in European trading hours on Tuesday. The Kiwi asset strengthens as the market sentiment turns cheerful with the United States (US) presidential elections taking center stage.
Traders remain uncertain over the likely outcome, with the latest polls showing a neck-to-neck competition between former President Donald Trump and their Democratic rival Kamala Harris.
The S&P 500 opens on a positive note, exhibiting decent demand for risk-sensitive assets. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, falls slightly to near 103.70.
Trump’s victory will be unfavorable for an economy like New Zealand, which is one of the leading trading partners of China. Trump vowed to levy a 60% import tariff on China if he wins, which will escalate risks to economic growth.
Though risk-on market mood has assisted a recovery in the kiwi dollar, its overall appeal remains weak as investors expect the Reserve Bank of New Zealand (RBNZ) to cut its interest rates again by 50 basis points (bps) in its last monetary policy meeting of this year on November 27.
The NZ economy is in dire need of economic stimulus to diminish fears of a further slowdown in the economy and revive labor demand. For fresh cues about current employment status, investors await Q3 Employment data, which will be published on Wednesday. The labor market report is expected to show that the Unemployment Rate rose to 5% from 4.6% in the previous quarter.
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.
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