The New Zealand dollar has remained stable despite recent market shifts. With key updates from the US and New Zealand on the horizon, traders are watching how interest rate changes could impact NZD/USD currency pair. In this article, we break down what to expect from the US jobs data and how rate changes may influence the New Zealand currency.
The New Zealand dollar (symbol: NZD) remained relatively unchanged at USD 0.6221 after a week of slight declines.
Market participants are now shifting their focus to the upcoming US jobs data, which could offer crucial insights into recession risks and influence the Federal Reserve’s future decisions on rate cuts. A slowdown in US job creation is expected, with the payroll report anticipated to show weaker employment figures.
In light of the recent soft economic data from the U.S., there is growing speculation that the Federal Reserve might opt for a more aggressive rate cut. If the jobs report falls short of expectations, it could strengthen the case for a 50-basis-point reduction at the 18 September meeting, as opposed to the 25-basis-point cut that has already been priced in by markets. This could weaken the US dollar, potentially offering short-term support for the NZD/USD pair.
Meanwhile, the Reserve Bank of New Zealand (RBNZ) is expected to continue its rate-cutting cycle. Having already lowered its official cash rate to 5.25%, the central bank is predicted to make another cut in October, with market pricing suggesting a 41% probability of a 50-basis-point cut. However, the RBNZ has indicated that the urgency for such a large cut has diminished due to improved consumer and business confidence.
The contrasting monetary policies of the Federal Reserve and the RBNZ are likely to play a significant role in determining the direction of the New Zealand dollar. While the Fed may pursue more aggressive rate cuts in response to easing inflation and a weakening labour market, New Zealand’s economy appears more resilient, which could limit the extent of future rate cuts by the RBNZ.
The recent price consolidation suggests that the Kiwi dollar could experience volatility, depending on the outcome of upcoming data releases. Traders may capitalise on price movements triggered by market reactions to the US payroll report.
If the report disappoints and bolsters the case for a larger Fed rate cut, the Kiwi dollar could rise further against a weakening US dollar. Conversely, if the US jobs data exceeds expectations, the NZD may weaken, as the Federal Reserve could opt for a more gradual pace in cutting rates. Additionally, monitoring local economic indicators, such as upcoming inflation data and retail sales figures in New Zealand, will help traders assess the RBNZ’s next move.
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