The New Zealand Dollar (NZD) is experiencing a decline against the US Dollar (USD), mainly influenced by a strengthening USD amid reduced expectations for substantial interest rate cuts from the Federal Reserve. The NZD/USD pair has paused its three-day rally, trading around 0.6080 during the Asian session on Tuesday. This downward movement is linked to the recent performance of the USD, which has gained momentum following a robust jobs report and ongoing concerns about persistent inflation in the United States.
On Tuesday, the US Dollar Index (DXY), which tracks the USD’s performance against six major currencies, continued its upward trajectory for the sixth consecutive day, trading near 103.30. Concurrently, yields on 2-year and 10-year US Treasury bonds are hovering around 3.96% and 4.09%, respectively. The Federal Reserve Bank of Minneapolis President recently reiterated the central bank’s commitment to a data-driven strategy, emphasizing the resilience of the US economy characterized by an easing of inflationary pressures alongside a stable labor market, despite a slight rise in the unemployment rate.
In contrast, the New Zealand Dollar faced pressures after disappointing trade balance figures emerged from China, New Zealand’s largest trading partner. Despite China’s announcement of a fiscal stimulus plan over the weekend, the Kiwi has struggled to gain momentum due to investor skepticism regarding the plan’s effectiveness. In September, China’s trade surplus shrank to 81.7 billion, falling short of the expected 89.8 billion, as exports grew by only 2.4%, greatly missing the anticipated 6.0%.
Market participants are closely monitoring New Zealand’s upcoming inflation data, with the Consumer Price Index (CPI) expected to revert to the Reserve Bank of New Zealand’s target range of 1-3%. Projections indicate a year-over-year decrease to 2.2% for the September quarter, down from the previous rate of 3.3%. The market’s sentiment suggests an 80% probability that the Reserve Bank of New Zealand will implement another 50 basis point rate cut at its upcoming meeting, further adding pressure to the NZD.
