New Zealand Dollar holds steady as traders await RBNZ rate decision
- The New Zealand Dollar trades flat in Tuesday’s early Asian session.
- Reduced bets for a RBNZ rate cut and signs of stronger demand from China supported the Kiwi.
- Rising Middle East geopolitical risks might limit the pair’s downside.
- The US Producer Price Index (PPI) will be in the spotlight on Tuesday before the RBNZ rate decision.
The New Zealand Dollar (NZD) trades on a flat note on Tuesday amid the modest decline of the Greenback. The stronger-than-expected New Zealand employment report last week diminished the possibility of the Reserve Bank of New Zealand (RBNZ) rate cut on Wednesday, which continues to support the Kiwi. Additionally, signs that Chinese demand is improving could contribute to the NZD’s upside as China is New Zealand's largest trading partner.
On the other hand, safe-haven buying amid elevated geopolitical tensions in the Middle East might push the US Dollar (USD) higher. The RBNZ interest rate decision and press conference on Wednesday will be closely watched. The hawkish messages from RBNZ Governor Adrian Orr might lift the NZD against the USD in the near term. Elsewhere, traders will keep an eye on the US economic data, which should shed further light on the Federal Reserve’s (Fed) outlook for rates. 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: New Zealand Dollar trades sideways, with all eyes on RBNZ Interest Rate Decision
- ING’s FX analysts Francesco Pesole and Chris Turner noted, “We narrowly favor a hold in August but see a greater chance that the RBNZ will cut 50 bps in October after the Fed has moved first. Ultimately, with over 90 bps of easing priced in by year-end, the difference between a hawkish cut and a dovish hold may not be huge: we still think easing bets can be trimmed by year-end.”
- 12 of 21 economists surveyed by Bloomberg expect the RBNZ to leave its OCR unchanged at 5.5% on Wednesday.
- Over half of the NZIER Shadow Board expects a 25 bps reduction in the OCR is required due to the persistent weakening of the New Zealand economy. The other members suggested that the New Zealand central bank should keep the OCR at 5.50%.
- The US Producer Price Index (PPI) is expected to drop to 0.1% MoM in July from 0.2% in June.
- Traders have priced in a nearly 47.5% chance that the Fed will cut the rate by 50 basis points (bps) in the September meeting, down from 52.5% last Friday, according to the CME FedWatch Tool.
Technical Analysis: New Zealand Dollar’s bearish trend prevails
The New Zealand Dollar flat lines on the day. The bearish outlook of the NZD/USD pair remains intact on the daily chart as the pair holds below the key 100-day Exponential Moving Average (EMA). Nonetheless, if the price decisively crosses above the key EMA, it would resume the uptrend. Meanwhile, the 14-day Relative Strength Index (RSI) is slightly above the 50 midline, indicating a potential shift towards more bullish sentiment in the short term.
A bullish turn could expose NZD/USD to the 100-period EMA near 0.6050. Any follow-through buying above this level will see a rally to 0.6082, the upper boundary of the Bollinger Band. Further north, the next upside target emerges at 0.6134, a high of July 8.
On the flip side, a low of August 6 at 0.5912 acts as an initial support level for the pair. Extended losses below this level could pave the way to 0.5856, a low of July 29 and the lower limit of the Bollinger Band.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.15% | -0.13% | 0.07% | -0.16% | 0.02% | -0.40% | 0.11% | |
| EUR | 0.15% | 0.03% | 0.22% | 0.01% | 0.17% | -0.25% | 0.27% | |
| GBP | 0.13% | -0.03% | 0.20% | -0.03% | 0.15% | -0.27% | 0.23% | |
| CAD | -0.07% | -0.22% | -0.20% | -0.21% | -0.03% | -0.47% | 0.04% | |
| AUD | 0.16% | -0.01% | 0.01% | 0.21% | 0.17% | -0.25% | 0.29% | |
| JPY | 0.00% | -0.17% | -0.16% | 0.03% | -0.18% | -0.41% | 0.09% | |
| NZD | 0.40% | 0.24% | 0.27% | 0.47% | 0.25% | 0.43% | 0.50% | |
| CHF | -0.11% | -0.27% | -0.24% | -0.04% | -0.26% | -0.10% | -0.51% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.