NZD/USD loses traction below 0.6150 ahead of US NFP data

July 5, 2024 1:34 am

  • NZD/USD edges lower near 0.6115 in Friday’s early Asian session. 
  • US Nonfarm Payrolls (NFP) data will be in the spotlight on Friday. 
  • The RBNZ is expected to hold its OCR steady at 5.5% next week. 

The NZD/USD pair weakens to nearly 0.6115, snapping the two-day winning streak during the early Asian session on Friday. The release of US Nonfarm Payrolls (NFP) for June will take center stage on Friday, along with the speech by the Federal Reserve’s (Fed) John Williams. 

The recent weaker-than-expected US economic data raised expectations that the Fed would start cutting the interest rate sooner than expected, which dragged the Greenback lower. Traders are now pricing in nearly 66% odds for a 25 basis points (bps) Fed rate cut in September,  up from 58.2% last Friday, according to CME FedWatch Tool.

 Meanwhile, the Minutes of the FOMC June monetary policy meeting showed that Fed officials lacked the confidence they needed to cut the interest rate. Additionally, most participants estimated that the current policy is restrictive but had opened the door for a rate hike. 

The attention on Friday will shift to the US employment data for June. The US Nonfarm Payrolls is expected to show 190K jobs addition in June, below the previous reading of 272K. The Unemployment Rate is projected to remain unchanged at 4%. Finally, the Average Hourly Earnings are forecast to drop to 3.9% YoY in June from 4.1% in May.

On the Kiwi front, ANZ economists said that the Reserve Bank of New Zealand (RBNZ) is expected to leave the Official Cash Rate (OCR) at 5.5% at its next monetary policy meeting next week. The central bank will likely maintain a cautious stance amid evolving economic data. However, the growing speculation that the RBNZ might cut interest rates earlier than expected in November might weigh on the New Zealand Dollar (NZD). 

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.

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