New Zealand Dollar declines as US Dollar advances ahead of PCE index data
- NZD/USD falls as the US Dollar gains support ahead of key US Personal Consumption Expenditures inflation data.
- Traders await Fed Chair Kevin Warsh's Friday Jackson Hole speech for clues on September policy decisions.
- NZD may rise on expectations of a 25-bps RBNZ rate hike next week, targeting 3.0% by year-end.
NZD/USD depreciates after registering modest gains in the previous day, trading around 0.5960 during the Asian hours on Wednesday. The pair declines as the US Dollar (USD) receives support ahead of the release of US Personal Consumption Expenditures data, the Federal Reserve’s preferred measure of inflation. Traders will shift their focus to Fed Chair Kevin Warsh’s speech at the annual Jackson Hole symposium on Friday to gain clear guidance on the central bank’s policy decision in September.
However, the upside of the US Dollar (USD) could be restrained due to easing safe-haven demand following reports that Iran and Oman discussed establishing a temporary joint maritime corridor in the Strait of Hormuz.
Technical talks between the two nations are set to continue as they work toward a permanent arrangement. This future corridor is expected to cover the administration of the strait, information-sharing mechanisms, traffic management, and the provision of maritime and security services.
Regional diplomatic efforts are also gaining momentum alongside these maritime discussions. Pakistan's army chief recently traveled to Tehran to back ongoing diplomatic initiatives, while Qatar confirmed that it is actively continuing its mediation efforts.
The New Zealand Dollar (NZD) could find support as markets anticipate a 25-basis-point rate hike from the Reserve Bank of New Zealand (RBNZ) at next week's policy meeting, potentially lifting the pair. The expected move would align with forecasts pointing to a year-end policy rate of 3.0%.
New Zealand Retail Sales slip as fuel and motor categories drag headline volumes
Brown Brothers Harriman’s Elias Haddad points out that New Zealand’s latest retail data delivered a negative surprise, with “total retail sales volume dropped -0.5% q/q (consensus: 0.2%) vs. 1.0% in Q1, driven by fuel, motor vehicle and parts retailing.” Haddad notes that the weakness was concentrated in these more volatile categories, while underlying, core retail activity continued to expand, underscoring still-resilient domestic demand even as headline volumes “unexpectedly plunged in Q2.” This mix of softer headline sales and firmer core spending comes as markets have virtually fully priced a 25 bps RBNZ hike to 2.75% on September 2 and a total of 75 bps tightening over the next twelve months, leaving scope for only limited NZD/USD upside in the near term.
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.