- NZD/USD was gaining momentum around 0.5980 early in the Asian session on Wednesday, up 0.54% on the day.
- New Zealand’s unemployment rate rose to its highest level since March 2021, rising to 4.6% in the second quarter from 4.3% previously.
- San Francisco Fed President Mary Daly said she expects interest rate cuts as the labor market weakens.
The NZD/USD pair extended the rally near 0.5980 during Wednesday’s early session. Further momentum for the New Zealand Dollar (NZD) is underpinned by an encouraging New Zealand employment report. Traders cut bets on the RBNZ heading for rate cuts next week.
Data released by Statistics New Zealand on Wednesday showed the country’s unemployment rate rose to 4.6% in the second quarter from 4.3% in the first quarter, better than the estimated 4.7%. Additionally, employment change rose 0.4% in the second quarter from a 0.2% drop in the previous reading. The figure was higher than the market consensus of a 0.2% decline. Better-than-expected readings eased the prospect of a Reserve Bank of New Zealand (RBNZ) rate cut next week and lifted the Kiwi against the USD.
On the other hand, after weak US jobs data in July raised fears of an imminent US economic slowdown, markets have been expecting the most aggressive rate cut since September, saying they expect a rate cut later this year. An improvement in inflation and a clear slowdown in hiring could lead the central bank to ease policy somewhat. Meanwhile, Chicago Fed President Austin Goolsbee said the central bank would adjust if there were signs of trouble in the economy.
New Zealand Dollar Frequently Asked Questions
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known 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 peculiarities of moving NZD. The evolution of the Chinese economy tends to move Kiwis because China is New Zealand’s largest trading partner. Bad news for the Chinese economy would translate into fewer exports to New Zealand, which would hurt the economy and its currency. Another factor that moves the NZD is milk prices, as dairy production is New Zealand’s main export. Higher milk prices increase export earnings, 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 of between 1% and 3% over the medium term, with an objective of keeping it close to the mid-2% range. To do this, the bank sets appropriate interest rates. When inflation is high, the RBNZ raises interest rates to cool the economy, but this move raises bond yields, making it more attractive for investors to invest in the country, thus boosting the NZD. Conversely, low interest rates weaken the NZD. The so-called rate differential, or what rates are in New Zealand or compared to rates set by the US Federal Reserve, can play a major role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are important for assessing the state of the economy and can affect the appreciation of the New Zealand Dollar (NZD). A strong economy in terms of high economic growth, low unemployment and high confidence bodes well for the NZD. High economic growth attracts foreign investment and this economic strength may encourage the Reserve Bank of New Zealand to raise interest rates if it is accompanied by high 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 appetite, or when investors perceive overall market risks as low and are optimistic about growth. This usually translates into a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD weakens during periods of market turbulence or economic uncertainty as investors sell riskier assets and flee to more stable havens.
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