NZD/USD weakens below 0.6100 as easing New Zealand CPI pushes RBNZ rate cut bets
- NZD/USD edges lower to 0.6080 in Thursday’s early Asian session, down 0.10% on the day.
- Fed officials said the central bank is 'closer' to cutting interest rates.
- The softer New Zealand CPI inflation data triggered rate-cut bets by the RBNZ this year.
Fed Governor Christopher Waller said on Wednesday that the US central bank is ‘getting closer’ to an interest rate cut as inflation's improved trajectory and the labor market are in better balance. Richmond Fed President Thomas Barkin said he is "very encouraged" that easing in inflation has begun to broaden and he would like to see it continue.”
Earlier this week, Fed Chair Jerome Powell said on Monday that the US central bank will not wait until inflation hits 2% to cut interest rates. The dovish comments from Fed officials might weigh on the Greenback and act as a tailwind for NZD/USD for the time being.
About the US economic data, the Building Permits increased by 3.4% to 1.446 million in June from 1.3999 million in May, while Housing Starts for the same period rose by 3.0% to 1.353 million from 1.314 million. US Industrial Production climbed 0.6% MoM in June from the previous reading of 1.0%, beating the estimation of a 0.3% increase.
New Zealand Consumer Price Index (CPI) inflation eased more than expected in the second quarter, prompting the expectation that the Reserve Bank of New Zealand would cut interest rates this year. The RBNZ signaled at its July meeting that the decision on rate cuts would be dependent on easing inflation. The country’s CPI rose 0.4% QoQ in Q2, compared to 0.6% in Q1, and was below analysts' forecasts of 0.6%. The annual rate of CPI inflation fell to its lowest rate in three years, arriving at 3.3% YoY in Q2 from a 4% rise in the 12 months to the March 2024 quarter.
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.