NZD extends rally ahead of PBoC rate decision

VaselineAugust 20, 2024

0 4 minutes read

NZD extends rally ahead of PBoC rate decision

The New Zealand dollar gains momentum in the first Asian session on Tuesday.
Positive risk sentiment weighs on the US dollar and lifts NZD/USD.
Investors await PBoC rate decision ahead of Fedspeak on Tuesday.

The New Zealand dollar (NZD) traded in positive territory for a third straight day on Tuesday. Risk sentiment in global markets and easing geopolitical risks in the Middle East continue to undermine the Greenback. However, dovish remarks from the Reserve Bank of New Zealand (RBNZ) after a surprise interest rate cut last week could limit the pair’s upside. RBNZ Governor Adrian Orr said on Monday he was more confident that inflation had returned to the 1-3% target area, increasing the likelihood of further rate cuts in the future.

Looking ahead, investors will be keeping an eye on the People’s Bank of China (PBoC) interest rate decision, along with Tuesday’s Fed speeches by Raphael Bostic and Michael Barr. On Friday, New Zealand retail sales data and Fed Chair Powell’s speech at the Jackson Hole symposium will be in focus.

Daily Digest Market Movers: NZD gathers strength amid broad USD weakness

New Zealand’s trade balance came in at -$9.29 billion for the year in July, up from -$9.5 billion previously, according to the latest data released by Statistics New Zealand on Tuesday.
New Zealand exports fell to $6.15 billion in July from $6.17 billion in June, while imports rose to $7.11 billion from $5.45 billion in previous readings.
Minneapolis Federal Reserve Bank President Neel Kashkari said on Monday it was timely to discuss a potential U.S. interest rate cut in September amid concerns about a weakening labor market, according to Reuters.
Chicago Fed President Austan Goolsbee said Sunday that the U.S. economy shows no signs of overheating, so Fed policymakers should be cautious about keeping policy tight longer than necessary.
Markets are now pricing in a nearly 77 percent chance of the Fed cutting interest rates by 25 basis points (bps) at its September meeting, according to CME’s FedWatch tool.

Technical Analysis: New Zealand dollar resumes broader uptrend

The New Zealand dollar is rising today. The NZD/USD pair is resuming its upward journey on the daily chart after breaking above the downtrend line on Monday. Additionally, the pair is holding above its 100-day exponential moving average (EMA), with its 14-day relative strength index (RSI) above the median line near 62.0, supporting buyers for now.

A decisive break above the upper bound of the Bollinger Band at the psychological 0.6100 level could open the way to 0.6154, the July 8 high. Further north, the next hurdle appears at 0.6222, the June 12 high.

On the other hand, the crucial support level for NZD/USD is seen at 0.6050 representing the 100-day EMA and the downtrend line. Sustained trading below this level could expose 0.5974, the August 15 low. The next level of contention is located at 0.5846, the lower limit of the Bollinger band.

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 thus 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 20, 2024

0 4 minutes read

Daily Digest Market Movers: NZD gathers strength amid broad USD weakness

Technical Analysis: New Zealand dollar resumes broader uptrend

New Zealand Dollar FAQ

Vaseline

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