NZD/USD hits three-week high near 0.5775; seems poised to climb further on bearish USD
- NZD/USD attracts buyers for the second straight day and climbs to a multi-week top.
- Fed rate cut bets keep the USD depressed near a multi-month low and lend support.
- A positive risk tone also benefits the risk-sensitive Kiwi and contributes to the move-up.
The NZD/USD pair gains positive traction for the second straight day on Monday and climbs to a three-week high, around the 0.5775 region during the first half of the European session. Spot prices now seem to have confirmed a breakout through a one-week-old range and could appreciate further amid the underlying bearish sentiment surrounding the US Dollar (USD).
In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near a multi-month trough amid worries about a tariff-driven slowdown in the US economic activity. Apart from this, softer US inflation figures released last week and signs of a cooling labor market might force the Federal Reserve (Fed) to cut interest rates several times this year. This, in turn, keeps the USD bulls on the defensive and acts as a tailwind for the NZD/USD pair.
Meanwhile, the global risk sentiment gets a minor boost in reaction to the latest stimulus measures announced by China over the weekend. This is seen as another factor undermining the safe-haven buck and benefiting antipodean currencies, including the Kiwi. Furthermore, the NZD/USD pair's intraday positive move could further be attributed to some technical buying above the 0.5750 horizontal resistance, which might have set the stage for further near-term appreciation.
However, it remains to be seen if bulls can capitalize on the move or opt to move to the sidelines ahead of this week's key central bank event risk – the outcome of the highly-anticipated two-day FOMC policy meeting on Wednesday. This will play a key role in influencing the USD demand and provide a fresh directional impetus to the NZD/USD pair. In the meantime, traders on Monday will take cues from the release of the US Retail Sales and the Empire State Manufacturing Index.
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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