The Impact of Federal Reserve Remarks on NZD/USD
The NZD/USD pair is experiencing a downward trend, currently trading around 0.6310 during European trading hours on Tuesday. This comes after Federal Reserve (Fed) Chairman Jerome Powell stated that the central bank will gradually lower its benchmark rate ‘over time.’ As a result, the USD has gained strength, causing the NZD/USD pair to weaken.
Factors Influencing Market Dynamics
- The US Dollar Index (DXY) is on the rise, trading around 101.00, supported by subdued US Treasury yields.
- US manufacturing data, including the ISM Manufacturing PMI, is anticipated to improve to 47.5 in September from the previous 47.2 reading.
- New Zealand’s Building Permits witnessed a 5.3% month-on-month decline in August, indicating a slowdown in new dwelling consents issuance.
Reserve Bank of New Zealand’s Response
The Reserve Bank of New Zealand (RBNZ) has responded to the economic slowdown by initiating policy easing in August. Economists predict further rate cuts in the remaining meetings this year, aligning with Governor Adrian Orr’s gradual approach.
Outlook for New Zealand Economy
- The NZIER Business Confidence index improved by 1% quarter-on-quarter in the third quarter, although overall sentiment remains cautious.
- New Zealand Treasury’s economic assessment suggests a minimal pickup in economic activity for the latest quarter.
Economic Indicator: ISM Manufacturing PMI
The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) is a key indicator reflecting business activity in the US manufacturing sector. A reading above 50 indicates expansion, benefiting the US Dollar (USD), while a reading below 50 signifies a decline, which is bearish for USD.
For more information on the ISM Manufacturing PMI, visit ISM’s official website.
Analysis of the Market Situation
The recent remarks by Fed Chairman Powell have influenced the NZD/USD pair, leading to a decline. The anticipated improvement in US manufacturing data may further impact market dynamics. New Zealand’s economic outlook remains cautious, with the RBNZ’s gradual approach to rate cuts reflecting the need for sustained economic recovery.