NZD/USD remains subdued around 0.5750 following Business NZ PMI release
- NZD/USD faces challenges as Business NZ PMI remained steady at 49.9 in September.
- The New Zealand Dollar struggles as traders expect the RBNZ to deliver a 25 bps rate cut in November.
- The US Dollar could further advance as risk aversion increases amid the ongoing government shutdown.
NZD/USD remains weaker for the fourth successive session, trading around 0.5750 during the Asian hours on Friday. The pair holds losses following September’s Business NZ Performance of Manufacturing Index (PMI), which held steady at 49.9, remaining in contraction.
The New Zealand Dollar (NZD) depreciated against the US Dollar (USD) after the Reserve Bank of New Zealand (RBNZ) decided on a larger-than-expected rate cut on Wednesday. The central bank cut its Official Cash Rate by 50 bps to 2.50%, the lowest level since July 2022, with rising market expectations of a 25 bps rate cut in November.
The NZD/USD pair also faced challenges as the US Dollar (USD) could receive further support from increased risk aversion, driven by the ongoing government shutdown. The US Senate remained deadlocked on legislation to end the government shutdown.
However, the prevailing dovish sentiment on the US Federal Reserve’s policy outlook could weigh on the Dollar and support the NZD/USD pair. Fed Bank of San Francisco President Mary Daly said on late Thursday that inflation has come in much less than she had feared. Daly further stated that the US central bank is projecting additional cuts in risk management.
Fed Governor Michael Barr said that the current outlook poses challenges for judging the stance of monetary policy and deciding the right path forward. Barr also noted that the Fed's rate cut in September was appropriate, and the current policy rate is still modestly restrictive. He added that it's hard to judge at this point whether the federal government shutdown will leave an imprint on the overall economy.
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.