NZD gathers strength, RBNZ rate decision in focus

VaselineAugust 12, 2024

0 5 minutes read

NZD gathers strength, RBNZ rate decision in focus

The New Zealand dollar gains traction in the first Asian session on Monday.
Declining RBNZ rate cut chances and hotter Chinese inflation data underpin Kiwis.
The RBNZ monetary policy meeting will take place on Wednesday.

The New Zealand dollar (NZD) is attracting some buyers near the psychological level of 0.6000 on Monday. The Kiwi is gaining traction as markets trimmed bets on a rate cut by the Reserve Bank of New Zealand (RBNZ) at its August meeting on Wednesday after a stronger-than-expected jobs report. Additionally, China’s hotter July consumer price index (CPI) supports the NZD proxy for China, as China is New Zealand’s largest trading partner.

However, increased volatility and heightened geopolitical risks from the Middle East could put some selling pressure on riskier assets such as the Kiwi and limit the pair’s upside. Traders await Wednesday’s RBNZ interest rate decision for fresh catalysts. On the US file, the Producer Price Index (PPI), Consumer Price Index (CPI) and Retail Sales will be released on Tuesday, Wednesday and Thursday respectively.

Daily Digest Market Movers: NZ dollar trades stronger as traders cut bets on RBNZ rate cut

12 out of 21 economists polled by Bloomberg expect New Zealand’s central bank to keep the OCR at 5.5% on Wednesday.
NZIER’s shadow council is split on whether the Reserve Bank of New Zealand (RBNZ) should cut the official cash rate (OCR) in its upcoming monetary policy statement in August.
More than half of shadow board members expect a 25bps cut in OCR needed due to the persistent weakening of the New Zealand economy. The other members suggested that the Reserve Bank should keep the OCR at 5.50%.
China’s CPI rose 0.5 percent year-on-year in July, compared with a 0.2 percent rise in June, warmer than expectations for a 0.3 percent increase, the National Bureau of Statistics reported on Friday. China. On a monthly basis, China’s CPI inflation came in at 0.5% monthly in July from -0.2% previously, above the consensus of 0.3%.
Fed Governor Michelle Bowman said on Sunday she still sees upside risks to inflation and continued strength in the labor market, noting the Fed may not be ready to cut rates at its next meeting in September, according to Reuters.
Traders priced in a nearly 52.5% chance the Fed would cut rates by 50 basis points (bps) at the September meeting, down from 57.5% last week, according to CME’s FedWatch tool.

Technical Analysis: The NZD remains bearish in the long term

The New Zealand dollar is rising today. However, the NZD/USD pair retains the bearish vibe on the daily time frame, characterized by the fact that the price remains below the key 100-day exponential moving average (EMA). The 14-day Relative Strength Index (RSI) is in neutral territory, hovering around the 50 midline. This suggests that the price may face consolidation before making a decisive move.

In the bullish scenario, the 100-period EMA near 0.6050 acts as an immediate resistance level for NZD/USD. Further north, this may pave the way for a move towards 0.6080, the upper limit of the Bollinger Band. The additional filter to watch is 0.6134, a July 9 high.

If the sellers regain control, we could see a pullback towards 0.5912, a low of August 6. Sustained trading below the said level could drag the pair to 0.5856, a July 29 low and the lower bound of the Bollinger Band.

The price in US dollars today

The table below shows the percentage change of the US dollar (USD) against the major currencies listed today. The US dollar was weakest against the New Zealand dollar.

	USD	EURO	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.08%	-0.09%	-0.05%	-0.26%	-0.16%	-0.34%	-0.04%
EURO	0.10%		0.02%	0.05%	-0.14%	-0.05%	-0.23%	0.06%
GBP	0.09%	0.00%		0.04%	-0.17%	-0.07%	-0.25%	0.03%
CAD	0.06%	-0.03%	-0.02%		-0.19%	-0.10%	-0.28%	0.01%
AUD	0.26%	0.16%	0.16%	0.18%		0.08%	-0.10%	0.19%
JPY	0.17%	0.07%	0.06%	0.09%	-0.10%		-0.18%	0.11%
NZD	0.33%	0.24%	0.24%	0.28%	0.08%	0.16%		0.28%
CHF	0.06%	-0.02%	-0.02%	0.01%	-0.19%	-0.10%	-0.28%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose Euro in the left column and move along the horizontal line to Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (quote).

New Zealand Dollar FAQ

The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is largely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some unique features that can make the NZD move as well. The performance of the Chinese economy tends to move Kiwis as China is New Zealand’s largest trading partner. Bad news for the Chinese economy likely means fewer New Zealand exports to the country, hitting the economy and therefore its currency. Another factor that moves the NZD is the price of dairy products, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.

The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with a focus on keeping it close to the 2% midpoint. For this purpose, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will raise interest rates to cool the economy, but this move will also raise bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate differential, or how New Zealand rates are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.

Macroeconomic data released in New Zealand is key to assessing the state of the economy and can impact the valuation of the New Zealand dollar (NZD). A strong economy based on high growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is coupled with increased inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.

The New Zealand Dollar (NZD) tends to strengthen during periods of risk or when investors perceive broader market risks to be low and are bullish on growth. This tends to lead to a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during periods of market turbulence or economic uncertainty as investors tend to sell riskier assets and flee to more stable havens.

VaselineAugust 12, 2024

0 5 minutes read