The NZD/USD currency pair has been depreciating due to hawkish remarks from Fed officials suggesting higher rates for longer. The Reserve Bank of New Zealand (RBNZ) is expected to keep its Official Cash Rate at 5.5% at its upcoming policy meeting, marking the seventh consecutive meeting without changes. The RBNZ is likely to stress the importance of maintaining a restrictive policy stance to bring inflation back within the 1-3% target range.
Recent data shows a decline in New Zealand’s 2-year inflation expectations, leading to speculation that the RBNZ may consider rate cuts later in 2024. Support for the NZD could come from China’s announcement of a stimulus package to boost its property market, which includes raising 1 trillion Yuan through bond issuances and relaxing mortgage regulations. This news could lift sentiment in the Kiwi markets due to the close trade ties between New Zealand and China.
Meanwhile, the USD is holding steady with no major economic data releases from the US. The Greenback is supported by higher US Treasury yields, while the Fed maintains a cautious stance on inflation and potential rate cuts in 2024. According to the CME FedWatch Tool, there is a slightly increased probability of a 25 basis-point rate cut by the Federal Reserve in September.
Overall, the NZD/USD pair is under pressure due to the Fed’s hawkish comments and expectations of continued high rates from the RBNZ. However, support for the Kiwi could come from positive developments in China’s property market. The stability of the USD due to higher Treasury yields and the Fed’s cautious approach to inflation will also impact the currency pair’s movements in the near term. Investors will closely monitor the RBNZ’s policy meeting and any updates on future rate decisions to gauge the direction of the NZD/USD exchange rate.
