NZD/USD Price Forecast: Strives to break above 50-day EMA

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The NZD/USD pair trades in a tight range around 0.5960 during the European trading session on Friday.

NZD/USD turns sideways around 0.5960 after a two-day upside move.
US Stephen Miran is nominated as Fed Kugler’s replacement.
Fed members have warned of downside employment risks.

The NZD/USD pair trades in a tight range around 0.5960 during the European trading session on Friday. The Kiwi pair consolidates after a two-day upside move, while the US Dollar (USD) struggles to gain ground due to upbeat expectations that the Federal Reserve (Fed) will cut interest rates in the September meeting.

During European trading hours, the US Dollar (USD) struggles to gain ground, with the US Dollar Index (DXY) edging marginally up, but stays close to more-than-a-week low around 98.00.

Fed’s interest rate expectations have accelerated due to growing labor market concerns. A slew of Fed officials has warned of downside employment risks after the monetary policy announcement last week.

Meanwhile, United States (US) President Donlad Trump has nominated Council of Economic Advisers Chairman Stephen Miran as the replacement of Fed Governor Adriana Kugler, who resigned last week.

Also, in New Zealand (NZ), cooling labor market conditions have increased hopes of further monetary policy expansion by the Reserve Bank of New Zealand (RBNZ). The data showed a 0.1% decline in Net Change in Employment, as expected, in the second quarter of the year. In the same period, the Unemployment Rate rose to 5.2% from the prior reading of 5.1%.

NZD/USD attempts to extend its recovery above the 50-day Exponential Moving Average (EMA), which trades around 0.5967.

The 14-day Relative Strength Index (RSI) oscillates around 50.00, indicating a sideways trend.

Going forward, a downside move by the pair below the June 23 low of 0.5883 will expose it to the May 12 low of 0.5846, followed by the round-level support of 0.5800.

In an alternate scenario, the Kiwi pair would rise towards the June 19 high of 0.6040 and the September 11 low of 0.6100 if it manages to return above the psychological level of 0.6000.

NZD/USD daily chart

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.