Tuesday brought a vigorous comeback on the NZD/USD currency pair. It further gained momentum as the price maintained its slow but steady rise through the early portion of the European session. This further positive development comes on the heels of renewed underlying weakness in the US Dollar. It is a sign of the overall positive turn in global risk sentiment. Indeed, the NZD/USD pair just made a new two-day losing streak, tumbling to the lowest level since March 2020 close to the big figure, or psychological level of 0.5500. Now, it is pulling in buyers, due in part to a perfect storm of positive conditions.
This positive momentum for the NZD/USD pair is mainly driven by new selling pressure on the US Dollar. Market participants are becoming increasingly sanguine about possible monetary policy turns from the US Federal Reserve. Combined, these changes have the potential to drastically reduce borrowing costs by the end of 2023. These factors start to paint a negative picture for the New Zealand Dollar. It reflects a healthy appetite for growth despite continued uncertainty in global trade.
Positive Technical Shifts
The kiwi dollar has come roaring back from its recent fall. It broke a two-day losing streak that had sent it to its lowest level since March 2020. No wonder investors are eager to get clues that this recovery has legs. Specifically, they are laser focused on the important psychological level of 0.5500 that was touched on Monday. The rebound to more elevated levels is a positive indication of a turnaround. Traders are trying to assess the risk on the back of incoming economic data and central bank signaling.
The recent price action of the US Dollar has been fundamental to the NZD/USD’s climb back. The USD was back under strong selling pressure. At the same time, the New Zealand Dollar was a popular choice of safe haven with its riskier cousins. This change in attitude has strengthened demand for the NZD as market traders seek opportunities during dynamic, choppy market conditions.
The next Federal Open Market Committee (FOMC) meeting is right around the corner. We look forward to this meeting’s minutes to provide further revelation regarding US monetary policy. Market analysts are eagerly watching these moves. They do expect dovish signals from the Fed to further weaken the Dollar and make the NZD/USD cross more attractive.
Risk Sentiment and Economic Indicators
The positive risk sentiment across global markets is another factor boosting the NZD/USD pair. That positive tone in risk appetite has propelled the New Zealand Dollar higher. This has at the same time provided an upward boost on net against other currencies. Worries over a further US-China trade war still pervade. Still, a large contingent of investors are cautiously optimistic that a resolution will come, further reshaping market dynamics.
Traders are preparing for several important economic indicators later this week. In particular, they are interested in the US Consumer Price Index (CPI) and Producer Price Index (PPI) and what these numbers will mean for inflation expectations and central bank policies. As such, any surprise outcome would create extreme market volatility in USD valuations and therefore NZD/USD exchange rates.
The anticipated release of these economic indicators will likely provide traders with insights into inflation trends, which are essential for forecasting monetary policy trajectories. Given the relationship between inflation data and central bank actions, consumer price index releases are especially impactful for NZD/USD.
Trade Wars and Market Dynamics
Although the outlook seems promising for the NZD/USD couple, major hurdles lie ahead. The never-ending US-China trade war is upending the established rules of global trade. Or, maybe most troubling of all, it would adversely impact broader market sentiment. Risks from potential escalation of tariffs and trade deals renegotiations may cap additional upside for riskier currencies. This even goes for the New Zealand Dollar.
The complex dance of international trade can have inordinate influence on the fortunes of economic growth and currency strength. Tensions between the US and China remain at an all-time high. Consequently, shifts in market expectations may lead to erratic price swings within the NZD/USD currency pair. Geopolitical risks are something that investors are acutely aware of given how quickly the landscape can change, pulling demand away from risky assets and back toward safe-haven currencies.
A growing risk appetite could eventually weigh on interest in long-term NZD/USD pair upside. Still, traders are optimistic that still-improving economic data combined with shifting central bank policy will provide the needed support. That fraying tension between aggressive risk-taking and vigilant risk aversion will remain one of the undercurrents steering traders’ tactics in the days ahead.