New Zealand Dollar heads into US data after dueling central bank holds
- NZD/USD falls below 0.5600 for the first time since October 15, then recovers.
- The Fed holds too, keeping the US rate 1.00-1.25 points above New Zealand's.
- US growth and price figures come Thursday, before New Zealand confidence data.
Both central banks behind NZD/USD left their rates alone on Wednesday, and the Reserve Bank of New Zealand (RBNZ) kept 2.75% with a hike priced near 90%. NZD/USD fell below 0.5600 on the RBNZ's decision, the first time under that level since October 15. It has climbed back to just above 0.5600 since the low.
The vote was 4-3, with RBNZ Governor Breman among the four who held, and all five of New Zealand's major banks had forecast a third straight hike. The decision took a quarter-point off where traders expected New Zealand's rate to be. The RBNZ's statement said tighter policy is still likely, from a committee that had just voted against it.
The Fed's hold at 3.75%-4.00% later in the session leaves the US rate 1.00-1.25 points above New Zealand's. Fed Chair Warsh wouldn't speculate on December, saying he doesn't prejudge meetings. NZD/USD edged higher while he spoke, but most of its climb from the RBNZ low came before the Fed's decision.
On the calendar
US personal spending for September is forecast up 0.6% after 0.9% in Thursday's 12:30 GMT release, with income forecast up 0.3% after 0.2%. The Chicago Purchasing Managers Index (PMI) follows at 13:45 GMT on Friday, forecast at 56.1 after 58.8. Both feed the Fed's December decision, the US side of NZD/USD's rate gap.
ANZ-Roy Morgan consumer confidence for October is due at 21:00 GMT on Thursday after 97.6, the first New Zealand figure since the hold. The RBNZ's next decision is in December, and a hike then needs one of the four who held to switch.
On the charts
Wednesday's drop took back more than four-fifths of the climb from the October 14 low just above 0.5550 to the October 22 high just above 0.5700. NZD/USD is back inside the range under 0.5650 that it held from October 1 to 15. The pair's 50-day Exponential Moving Average (EMA) is just above 0.5700, and the 200-day is just under 0.5800.
NZD/USD daily chart
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.