Kiwi dollar dips as RBNZ signals more rate cuts and USD gains ahead of key US data
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Daily Currency Update
The NZD/USD currency pair is experiencing selling pressure, falling to around 0.5870 during the early European trading session on Thursday. This decline is largely driven by a strengthening US dollar (USD), which has gained support ahead of several important economic reports scheduled for release later in the day. Traders are closely watching the weekly Initial Jobless Claims, the ADP Employment Change, and the ISM Services Purchasing Managers Index (PMI). These reports provide insights into the health of the US labor market and service sector, and their results could significantly influence the direction of the US dollar. Since the NZD/USD pair reflects the value of the New Zealand dollar against the US dollar, movements in the USD tend to have a strong impact on the pair’s performance. Meanwhile, in New Zealand, the Reserve Bank of New Zealand (RBNZ) has been aggressively cutting interest rates since August 2024. This policy shift aims to support the country’s fragile economic recovery after a period of aggressive rate hikes that were initially introduced to combat rising inflation. Higher interest rates made borrowing more expensive, slowing down economic growth. The recent cuts are intended to make borrowing cheaper, encouraging spending and investment to help the economy rebound. The RBNZ has also signaled that additional rate cuts could be coming, reinforcing expectations that monetary policy will remain supportive for the near future. Analysts currently anticipate that the RBNZ will lower the Official Cash Rate (OCR) by two more steps, potentially bringing it down to 2.50%. This would mark the lowest level since mid-2022 and reflect a continued shift toward a more accommodative stance. This dovish tone from the RBNZ, which means the central bank is focused more on stimulating growth than on tightening policy to fight inflation, combined with a stronger US dollar, is creating a headwind for the NZD/USD pair. The stronger USD makes the New Zealand dollar less attractive to investors, while expectations of further rate cuts tend to weaken the NZD by reducing potential returns on investments denominated in the currency. Looking ahead, market participants will keep a close eye on the upcoming US data releases for clues about the future direction of the US economy and Federal Reserve policy. If the US labor market shows signs of strength, the US dollar could gain further, putting more pressure on the NZD/USD pair. Conversely, weaker-than-expected US data could weigh on the USD and potentially offer some relief to the New Zealand dollar.Key Movers
Applications for US unemployment benefits climbed to their highest level since June, reinforcing signs that the labor market is beginning to cool. In the week ending August 30, initial jobless claims rose by 8,000 to a total of 237,000, surpassing the median forecast of 230,000 predicted by economists surveyed by Bloomberg. This increase suggests that more workers are filing for unemployment benefits, indicating a potential slowdown in hiring or layoffs in certain sectors. The four-week moving average of new jobless claims, a key metric used to smooth out weekly fluctuations, also ticked up, reaching 231,000, its highest point since July. This trend points to a subtle weakening in the job market compared to the more robust readings seen earlier this summer. Moreover, even before seasonal adjustments, the number of initial claims increased last week, underscoring the underlying rise in unemployment applications. Among individual states, Connecticut and Tennessee recorded the largest increases in jobless claims, suggesting localised challenges in those labor markets. Overall, these developments add to mounting evidence that the US labor market may be losing some of its earlier momentum, which could have implications for Federal Reserve policy and broader economic growth moving forward.Expected Ranges
- NZD/USD: 0.5750 - 0.5950 ▼
- NZD/EUR: 0.4900 - 0.5100 ▼
- GBP/NZD: 2.2950 - 2.3150 ▲
- NZD/AUD: 1.1050 - 1.1250 ▼
- NZD/CAD: 0.7950 - 0.8150 ▼