NZD/USD jumps above 0.5650 as RBNZ cuts OCR to 2.25%

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The NZD/USD pair climbs to near 0.5665 during the early Asian session on Wednesday. The New Zealand Dollar (NZD) strengthens against the US Dollar (USD) following the Reserve Bank of New Zealand (RBNZ) interest rate decision.

NZD/USD rises to around 0.5665 in Wednesday’s early Asian session.
RBNZ cut its benchmark cash rate by 25 bps to 2.25% on Wednesday.
US Retail Sales rose by 0.2% in September, softer than expected.

As widely expected, the RBNZ decided to cut its Official Cash Rate (OCR) by 25 basis points (bps) to 2.25% at its November meeting on Wednesday. The Kiwi attracts some buyers in an immediate reaction to the RBNZ rate decision. The move came amid signs of slowing economic growth, including a soft housing market. Traders will closely monitor the press conference at 2.00 GMT. Policymakers were expected to provide some insight into the rate decision in between.

Softer-than-expected US economic reports released on Tuesday have weighed on the Greenback. Data released by the US Census Bureau showed that Retail Sales in the United States (US) rose by 0.2% MoM in September, versus the 0.6% increase prior. This figure came in below the market's expectation of 0.4%.

Meanwhile, private employers shed an average of 13,500 jobs for the four weeks ending November 8, the Automatic Data Processing (ADP) showed on Tuesday. This reading indicated further signs of a weakening US labor market, which boosts the expectation for the US Federal Reserve (Fed) rate cut in December and drags the US Dollar lower. Traders are now pricing in nearly an 85% probability of a quarter percentage point cut from the Fed in December, up from 80% earlier this week, according to the CME FedWatch tool.

The US Durable Goods Orders, the weekly Initial Jobless Claims, the Chicago PMI, and the Fed Beige Book will be published later on Wednesday. If the reports show a stronger-than-expected outcome, this could lift the Greenback and act as a headwind for the pair.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.