The gradual uptrend in NZD USD exchange rates seen since the middle of June shows some signs of abating, although volatility remains high.
Strong New Zealand GDP Boosts NZD, USD Undulates on Wavering Fed Hike bets
The New Zealand Dollar strengthened around strong second-quarter GDP figures, although most of the gains were pre-emptively priced-in to the ‘Kiwi’. Forecasts had been for quarter-on-quarter expansion to accelerate from 0.7% to 1.1%, although the actual figure clocked in at 0.9%. Year-on-year growth posted the bullish rise that had been anticipated, climbing from 2.8% to 3.6%.
The US Dollar has fluctuated markedly against the New Zealand Dollar in line with undulating bets of monetary tightening from the Federal Reserve in the coming months. The Fed Funds futures market has rapidly alternated between showing narrow odds of a policy freeze for the remainder of the year and marginally expecting tighter policy in December. Converse data kept the markets uncertain; advance retail sales dropped -0.3% instead of the forecast -0.1%, but consumer prices exceeded expectations by ten basis points in both the core and non-core measures.
Long-Term NZD USD Exchange Rate Forecast; Central Bank Meetings will Decide Trajectory
The long-term outlook for the NZD USD exchange rate will be decided by the central bank meetings taking place on the 21st September.
The Federal Reserve meets first. Markets expect no changes to monetary policy, but they are looking for a strong signal that a hike is coming in December. Fed Funds futures at the time of writing show that the markets are pricing-in a 54.9% chance of interest rates being raised above the current 0.50% upper bound. Should the Fed make clear signals, the US Dollar will trend bullishly as the December meeting approaches. A more cautious tone will likely see the ‘Greenback’ plummet further.
The Reserve Bank of New Zealand (RBNZ) is facing the opposite situation. An overly strong New Zealand Dollar is stymieing attempts to boost inflation and markets are strongly expecting further rate cuts in the future, but not at this meeting. Again, investors will be looking for clear signals of future policy changes, this time tilted to the downside. Should these be absent from policy statements, NZD could charge even further.
NZD, USD Exchange Rates
At the time of writing the New Zealand Dollar US Dollar (NZD USD) exchange rate was trending around 0.7348, while the US Dollar New Zealand Dollar (USD NZD) exchange rate was trading around 1.3605.
The relative strength indicators for NZD USD clocked in at 56.16, suggesting that the currencies are near the neutral point; neither is particularly overbought or oversold.
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