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NZD/USD falls to almost 0.6200 as the likelihood of an aggressive rate cut by the RBNZ increases

Posted on by Vaseline
NZD/USD falls to almost 0.6200 as the likelihood of an aggressive rate cut by the RBNZ increases

  • NZD/USD continues to lose ground as the RBNZ is widely expected to implement a 50 basis point rate cut in October.
  • HSBC and BNZ expect the RBNZ to cut its cash rate by 50 basis points next week.
  • The US dollar gained support as recent US data faded the dovish sentiment surrounding the Fed’s policy outlook.

NZD/USD extended its losing streak, trading around 0.6200 during early European hours on Friday. This downside for the pair could be attributed to subdued sentiment surrounding the Reserve Bank of New Zealand’s (RBNZ) monetary policy next week. RBNZ is widely expected to implement a 50 basis point rate cut amid concerns about weak economic growth and rising unemployment.

HSBC analysts expect the Reserve Bank of New Zealand (RBNZ) to cut cash rates by 50 basis points in both October and November, revising their previous forecast of a cut of 25 basis points per month. Similarly, the Bank of New Zealand (BNZ) is also forecasting a 50 basis point rate cut against the RBNZ next week, citing disinflationary data as a key factor that could prompt the central bank to accelerate its easing measures.

The risk-sensitive NZD/USD pair could struggle due to safe-haven flows amid escalating tensions in the Middle East. US President Joe Biden stated that the United States (US) is in talks with Israel about possible attacks on Iranian oil infrastructure. Israeli Prime Minister Benjamin Netanyahu warned that Iran “will pay a heavy price” for Tuesday’s attack, which fired at least 180 ballistic missiles at Israel, according to the BBC.

The US dollar (USD) received support from better-than-expected US ISM Services PMI and ADP Employment Change data released this week. These reports have called into question the moderate expectations for the Federal Reserve’s (Fed) monetary policy.

Federal Reserve Bank of Chicago President Austan Goolsbee said Thursday that interest rates should fall “a lot” in the coming year. Goolsbee further stated that he wants to keep the unemployment rate at 4.2% and prevent it from rising further.

Frequently asked questions about New Zealand dollars

The New Zealand dollar (NZD), also known as the Kiwi, is a well-known trading currency among investors. Its value is largely determined by the health of New Zealand’s economy and the policies of the country’s central banks. However, there are some unique features that can also set the NZD in motion. The performance of the Chinese economy tends to move the Kiwi, as China is New Zealand’s largest trading partner. Bad news for the Chinese economy is likely to mean fewer New Zealand exports to the country, impacting the economy and therefore the currency. Another factor affecting the NZD is dairy prices, as the dairy industry is New Zealand’s main export. High dairy prices stimulate export income and contribute positively to the economy and therefore 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 on keeping the inflation rate around the mid-2% range. To this end, the bank determines an appropriate interest level. When inflation is too high, the RBNZ will raise interest rates to cool the economy, but this move will also increase bond yields, increasing investors’ appeal to invest in the country and thus boosting the NZD. On the contrary, lower interest rates tend to weaken the NZD. The so-called interest rate differential, or how New Zealand interest rates are or will be compared to the interest rate set by the US Federal Reserve, could also play a key role in moving the NZD/USD pair.

The release of macroeconomic data in New Zealand is critical to assessing the state of the economy and could impact 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 NZD. High economic growth attracts foreign investment and could prompt the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, the NZD is likely to fall in value when economic data is weak.

The New Zealand dollar (NZD) tends to rise during risk periods, or when investors perceive broader market risks are low and are optimistic about growth. This generally leads to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, the NZD tends to weaken during 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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