New Zealand Dollar gathers strength, with all eyes on RBNZ rate decision
- The New Zealand Dollar (NZD) extends upside in Wednesday’s Asian session.
- Improved risk sentiment and softer US Dollar support the NZD/USD pair.
- Market participants await the RBNZ interest rate decision, with no change in rate expected.
The New Zealand Dollar (NZD) extends the rally on the weaker Greenback on Wednesday. Further optimism in the risk sentiment has maintained the US Dollar (USD) under pressure in the previous sessions and created a tailwind for the pair. The signs of stronger demand from China also underpin the Kiwi as China is New Zealand's largest trading partner.
Nonetheless, escalating geopolitical tensions in the Middle East might limit the upside for the NZD. All eyes will be on the Reserve Bank of New Zealand (RBNZ) interest rate decision on Wednesday at 02:00 GMT. The New Zealand central bank will likely hold its Official Cash Rate (OCR) at 5.50% at its August meeting. The policy decision appears to be a “close call” between a hold and a cut, as inflation expectations fall. Traders will take more cues from the Press conference, and dovish comments from RBNZ Governor Adrian Orr could weigh on the Kiwi. Later in the day, the US July Consumer Price Index (CPI) will be in the spotlight.
Daily Digest Market Movers: New Zealand Dollar gains momentum ahead of RBNZ rate decision
- Swap markets imply a nearly 70% chance of the RBNZ lowering the cash rate by 25 basis points (bps) to 5.25%. Markets are pricing in 90 bps of easing this year and another 148 basis points in 2025.
- The US Producer Price Index (PPI) for final demand in the US rose 2.2% YoY in July from 2.7% in June, the Bureau of Labor Statistics showed Tuesday. This figure was below the market expectation of 2.3%. On a monthly basis, the PPI increased 0.1% MoM in the same period after rising by an unrevised 0.2% in June.
- The annual core PPI came in softer than expected, rising by 2.4% in July but falling short of an estimate of 2.7%. On a monthly basis, the core PPI remained unchanged.
- Investors expect a 25 basis point (bps) rate cut in September, followed by similar reductions in November and December. A 50 bps cut in September is possible but depends entirely on the data.
- Atlanta Fed President Raphael Bostic said on Tuesday that recent economic data made him "more confident" that the Fed can get inflation back to its 2% target. Still, more evidence is needed before he's ready to support lowering interest rates, per Reuters.
Technical Analysis: New Zealand Dollar resumes bullish bias
The New Zealand Dollar trades on a firmer note on the day. However, the NZD/USD pair has resumed its uptrend since the price crossed above the key 100-day Exponential Moving Average (EMA) and broke above the descending trendline on the daily chart. The 14-day Relative Strength Index (RSI) is above the midline near 61.00, suggesting that upside momentum is present and the support level is likely to hold rather than break.
The immediate resistance level for NZD/USD emerges at the 0.6090-0.6100 region, portraying the upper boundary of the Bollinger Band and psychological mark. A decisive break above this level could potentially take the price to 0.6154, a high of July 8.
On the other hand, the resistance-turned-support level at 0.6050 acts as an initial support level for the pair. Any follow-through selling below the mentioned level would expose 0.5977, a low of August 8.
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 | -0.74% | -0.91% | -0.20% | -1.03% | 0.01% | -1.41% | 0.01% | |
| EUR | 0.73% | -0.15% | 0.54% | -0.26% | 0.75% | -0.67% | 0.74% | |
| GBP | 0.89% | 0.15% | 0.70% | -0.12% | 0.90% | -0.50% | 0.89% | |
| CAD | 0.20% | -0.54% | -0.70% | -0.81% | 0.21% | -1.20% | 0.21% | |
| AUD | 1.02% | 0.26% | 0.11% | 0.80% | 1.01% | -0.39% | 1.01% | |
| JPY | -0.02% | -0.78% | -0.96% | -0.26% | -1.07% | -1.45% | -0.04% | |
| NZD | 1.41% | 0.68% | 0.52% | 1.21% | 0.41% | 1.43% | 1.40% | |
| CHF | -0.02% | -0.76% | -0.92% | -0.22% | -1.01% | -0.01% | -1.43% |
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).
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.