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The New Zealand Dollar against the US Dollar (NZD/USD) attracted some intraday sellers on Wednesday, dropping to a four-week low around 0.5870 after the Reserve Bank of New Zealand (RBNZ) announced its policy decision. However, the spot price managed to recover back to the round figure of 0.5900 at the start of the European session, although it currently seems difficult to achieve a significant recovery.
The RBNZ decided to maintain its interest rate target at 5.50%, in line with many forecasts, and did not provide any new indications that they plan to raise rates again.
In its accompanying monetary policy statement, the central bank noted that demand growth in the economy continues to slow, and higher interest rates are no longer exerting the necessary inflationary pressure.
This suggests that the RBNZ may have ended its rate hike cycle, which in turn weakened the New Zealand Dollar (NZD). In a scenario where the US Dollar (USD) is bullish, this adds further pressure on the NZD/USD pair.
The USD Index (DXY), which measures the value of the US Dollar against a basket of major currencies, is near an 11-month high and is continuously supported by increasing confidence that the Federal Reserve (Fed) will maintain policies that bolster the US Dollar.
Additionally, recent statements from several Fed officials have increased the likelihood that rates will be raised at least once more by the end of the year. Furthermore, the US JOLTS report released on Tuesday showed that the labor market remains very competitive, reintroducing wage inflation factors, which means the Fed may keep interest rates high for a longer duration.
This outlook has pushed US 10-year government bond yields to their highest level since 2007, supporting the value of the US Dollar. On the other hand, continued selling in the US bond market and concerns about the economic impact of rapid rate hikes, along with worries about a weakening property sector in China, continue to unsettle investors.
All of this is reflected in a general decline in stock markets, which in turn benefits the US Dollar as a safe-haven currency and drives funds away from the more risk-sensitive New Zealand Dollar (Kiwi).
However, traders seem reluctant to be overly aggressive in betting against the NZD/USD pair and prefer to wait for upcoming macro data from the US, including the ADP report related to private sector employment and the ISM Services PMI.
This, along with movements in US bond yields and overall risk levels, will affect demand for the US Dollar and provide short-term trading opportunities in this currency pair. Nonetheless, market attention remains focused on the highly anticipated monthly US employment data release—known as the NFP report—scheduled for Friday.
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Warning!
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