The New Zealand dollar, also known as the Kiwi, has been struggling in the currency exchange market this year. Despite a slight increase against the yen and the Swiss franc due to lower interest rates in Japan and Switzerland, the Kiwi has faced challenges against the US dollar, the British pound, and the euro. This has resulted in a 1-3% decline in the Kiwi’s value, mainly because of the tight rate differentials between the corresponding economies.
The Reserve Bank of New Zealand (RBNZ) raised interest rates to a 15-year high of 5.5% in response to high inflation. However, despite this rate hike, inflation in New Zealand has been slowly decreasing, standing at 4.0% year-on-year in the first quarter. This is higher than the inflation rates in Australia, the US, and the UK. Although the inflation rate is within the target range of 1-3%, it is still above the 2.0% midpoint objective set by policymakers.
Analysts are skeptical about the possibility of another interest rate hike and are instead anticipating a quarter percentage reduction by the end of the year. With rising unemployment rates and concerns about the economy’s stagnation, there may be little reason for the RBNZ to increase borrowing costs. The central bank is not expected to make any significant policy changes until its August meeting, waiting for more evidence to justify a rate cut.
Investors are closely watching for any comments on wage growth during the RBNZ meeting. If wage growth is considered a risk to inflation due to elevated inflation expectations, the Kiwi could see some support. Additionally, upcoming data releases on food and house prices, as well as retail spending, will provide further insights into the state of the New Zealand economy.
In terms of the NZDUSD outlook, the recent US employment report has had a positive impact on the Kiwi’s performance. While US employment increased more than expected, other labor fundamentals showed weaknesses, increasing the likelihood of a rate cut in the US. The resistance zone for NZDUSD remains at 0.6188-0.6200, and a decisive break above this level could push the price higher. Conversely, a dovish shift by the RBNZ could lead to a decline in the pair’s value, potentially reaching support levels at 0.6000-0.6030 and 0.5950.
Overall, the performance of the Kiwi against major currencies depends on various factors, including inflation, interest rates, and economic conditions. Investors will be closely monitoring the RBNZ’s decisions and economic data releases to gauge the future direction of the New Zealand dollar.