The Current State of NZD/USD
- NZD/USD recovers mildly after hitting a yearly low near 0.5820, but the overall outlook remains bearish.
- The Fed is anticipated to pause after reducing interest rates next month.
- Investors are expecting the RBNZ to decrease interest rates by 50 bps to 4.25% on Wednesday.
The NZD/USD pair has seen a slight rebound after reaching a fresh yearly low close to 0.5820 during the North American session on Friday. The Kiwi pair is currently on the weaker side as the US Dollar (USD) shows strength across the board due to expectations that the Federal Reserve (Fed) will approach interest rate cuts more cautiously.
Insights into Federal Reserve’s Potential Actions
Analysts at Deutsche Bank suggest that the Fed might adopt an “extended pause” strategy, keeping Federal Fund rates above 4% until 2025. This projection is supported by expectations of transformative policy changes following the Republican sweep, potentially leading to growth of 2.5% next year and inflation stabilizing at or above 2.5% through 2026.
For the upcoming December meeting, analysts foresee a 25 basis points (bps) cut in interest rates by the Fed. The CME FedWatch tool indicates a 59% likelihood of the Fed reducing key borrowing rates by 25 bps to 4.25%-4.50%.
RBNZ Monetary Policy Decision
Turning our attention to the New Zealand Dollar (NZD), all eyes are on the Reserve Bank of New Zealand (RBNZ) monetary policy announcement scheduled for Wednesday. The RBNZ is expected to implement a 50 bps interest rate cut, bringing it down to 4.25%. This would mark the third consecutive rate cut by the RBNZ, with a second consecutive reduction of 50 bps.
The NZD/USD pair has been on a downward trend for the past three trading days, facing resistance near the 20-day Exponential Moving Average (EMA) around 0.5930. The 14-day Relative Strength Index (RSI) indicates ongoing downward momentum in the market.
Potential Price Movements
It is anticipated that the Kiwi pair could decline towards the October 2023 low at 0.5770 and the psychological support level of 0.5700 after breaking below the recent intraday low of 0.5820. Conversely, an upward movement beyond the November 15 high of 0.5970 could drive the pair towards the key level of 0.6000 and the November 7 high of 0.6040.
NZD/USD Daily Chart
New Zealand Dollar FAQs
Here are some frequently asked questions about the New Zealand Dollar (NZD) and its relationship with various economic factors:
1. Factors Influencing NZD Movement
- The health of the New Zealand economy
- Chinese economy performance (New Zealand’s largest trading partner)
- Dairy prices (main export of New Zealand)
2. Impact of RBNZ Policy on NZD
- RBNZ aims for an inflation rate between 1% and 3%
- Interest rate adjustments influence NZD strength
- Rate differentials compared to the US Federal Reserve affect NZD/USD pair
3. Importance of Macroeconomic Data
- Strong economy with high growth and low unemployment benefits NZD
- Weaker economic data may lead to NZD depreciation
4. NZD Behavior in Market Conditions
- Strengthens during risk-on periods
- Weakens in times of market turbulence
Analysis
The information provided sheds light on the current state of the NZD/USD pair, highlighting key factors influencing its movement. Understanding the impact of Federal Reserve decisions, RBNZ policies, and various economic indicators on the currency pair is crucial for investors and traders.
By analyzing the potential price movements and considering the FAQs related to the New Zealand Dollar, individuals can make more informed decisions regarding their investments. Monitoring macroeconomic data, central bank actions, and market conditions can help navigate the complexities of the forex market and optimize financial strategies.