NZD/USD Gains Ground Amid Dovish Fedspeak and Risk-On Sentiment
- Minneapolis Fed President Kashkari anticipates additional rate cuts in 2024, expecting them to be smaller than previous reductions.
- The New Zealand Dollar finds support from stimulus measures by China, its close trading partner.
The NZD/USD pair continues its upward trend for the second day in a row, driven by improved risk sentiment following the Federal Reserve’s dovish policy outlook. Currently, the pair trades around the monthly high of 0.6280 level during the Asian session on Tuesday.
Dovish Fedspeak Impact on USD
The US Dollar faces downward pressure due to dovish comments from Federal Reserve officials. Minneapolis Fed President Neel Kashkari stated on Monday that he foresees additional interest rate cuts in 2024, albeit smaller than the previous reduction. Moreover, Chicago Fed President Austan Goolsbee expressed the view that more rate cuts are necessary over the next year to significantly reduce rates.
Rate Cut Expectations
Federal Reserve policymakers project a total of 50 basis points in rate cuts by the end of 2024. The CME FedWatch Tool indicates a 50% probability of a 75 basis point reduction by year-end, which would lower the Fed’s rate to a range of 4.0-4.25%.
Support from China
The New Zealand Dollar receives support from China, its largest trading partner, through various stimulus measures. The People’s Bank of China injected liquidity into the banking system via reverse repos, indicating a positive impact on the NZD.
RBNZ Rate Cut Expectations
The Reserve Bank of New Zealand is expected to continue its rate cut trajectory, with markets anticipating a 25 basis point reduction in October. Recent economic data showing contraction in the second quarter highlights ongoing economic challenges in New Zealand.
New Zealand Dollar FAQs
Factors Influencing NZD Movement
The value of the New Zealand Dollar (NZD) is influenced by various factors:
- The health of the New Zealand economy and central bank policy
- Performance of the Chinese economy (as New Zealand’s largest trading partner)
- Dairy prices (main export of New Zealand)
RBNZ Monetary Policy Impact
The Reserve Bank of New Zealand aims to maintain inflation within a specific range, affecting interest rates and the attractiveness of NZD to investors.
Macroeconomic Data and NZD Valuation
Economic indicators in New Zealand play a crucial role in evaluating the state of the economy and influencing the valuation of the New Zealand Dollar.
Risk-On Sentiment and NZD Strength
The New Zealand Dollar tends to strengthen during periods of low market risk and optimism about growth, while weakening in times of market turbulence or uncertainty.