New Zealand Dollar gives up Iran-talks gain following RBNZ hold

NZD/USD retreats towards 0.5600, erasing its entire gain from Dollar weakness.
Underperforming the Euro and the Pound, the Kiwi faces an RBNZ rate held at 2.75% after a 4-3 vote.
Ahead of the November 7 election, New Zealand releases third-quarter employment figures on Tuesday.

NZD/USD has surrendered all the gains driven by a weaker Dollar, while the Reserve Bank of New Zealand (RBNZ) keeps its rate at 2.75%. US-Iran diplomacy had pushed both the Dollar and Crude Oil lower, helping the pair recover from a session trough just above 0.5600 to slightly below 0.5650. The pair has since returned to just above 0.5600, leaving it below its opening level for the week.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Westpac described the RBNZ's October 28 decision as a shock to the market: the bank left rates unchanged by four votes to three, with Governor Breman voting in favour of a hold. With the next review not due until December 9 and the Fed's rate at 3.75%-4.00%, the interest-rate gap for NZD/USD will remain at least 1.00 point until then.

Despite projecting inflation to rise from September's 3.7% to 4.4% by year-end, the RBNZ opted against a rate increase. Meanwhile, firmer Australian inflation has fuelled expectations of further Reserve Bank of Australia (RBA) hikes, and the New Zealand Dollar has weakened against the Australian Dollar as well. Against this backdrop, NZD/USD has underperformed the Euro and the Pound against the Dollar.

Which releases and events are in focus?

Due on Tuesday at 21:45 GMT, New Zealand's third-quarter labour market report is the country's main data release ahead of the RBNZ's December 9 decision. Forecasts put unemployment at 5.5%, compared with 5.6% previously, and employment growth at 0.4%, down from 0.5%. The general election then takes place on Saturday, November 7.

US October Nonfarm Payrolls (NFP), scheduled for Friday at 13:30 GMT, are expected at 65K, while the unemployment rate is forecast to remain at 4.2%. Before that, Tuesday's September job openings release at 15:00 GMT is projected at 7.13 million, against 7.079 million previously. Both releases inform the Fed side of the NZD/USD interest-rate differential.

What do the charts indicate?

A half-cent range has contained NZD/USD since October 29, one day after the RBNZ decision. The preceding advance from just above 0.5550, the October 14 low, had stalled just below the 50-day Exponential Moving Average (EMA). The 50-day EMA now stands near 0.5700, while the 200-day EMA sits slightly below 0.5800.

NZD/USD: 5-minute chart

NZD/USD: daily chart

New Zealand Dollar: Frequently Asked Questions

Which factors are the main drivers of the New Zealand Dollar?

Widely traded by investors, the New Zealand Dollar (NZD) is also referred to as the Kiwi. The strength of New Zealand's economy and its central bank's policy broadly determine the currency's value, although several distinctive influences also matter. As China is New Zealand's largest trading partner, developments in the Chinese economy often affect the Kiwi. Negative economic news from China is likely to reduce demand for New Zealand's exports, weighing on the domestic economy and, in turn, its currency. Dairy prices are another important driver because dairy products are New Zealand's leading export. Higher prices increase export earnings, supporting both the economy and the NZD.

How can RBNZ policy decisions affect the New Zealand Dollar?

Keeping inflation within a 1% to 3% range over the medium term, preferably close to the 2% midpoint, is the Reserve Bank of New Zealand's (RBNZ) objective. The bank sets interest rates at a level suited to that goal. If inflation becomes too high, the RBNZ raises rates to slow economic activity. Higher rates also lift bond yields, making investment in the country more attractive and supporting the NZD. Rate reductions, by contrast, generally weigh on the currency. The NZD/USD pair can also be significantly influenced by the rate differential: the actual or expected gap between New Zealand's interest rates and those set by the US Federal Reserve.

What role do economic releases play in New Zealand Dollar valuations?

By helping investors assess the economy's health, New Zealand's macroeconomic releases can influence the valuation of the New Zealand Dollar (NZD). Robust growth, low unemployment and strong confidence underpin a healthy economy and support the currency. Strong economic growth draws foreign investment and, when accompanied by elevated inflation, may prompt the Reserve Bank of New Zealand to raise interest rates. Weak economic readings, on the other hand, are likely to lead to NZD depreciation.

How does market risk appetite affect the New Zealand Dollar?

Risk-on conditions generally support the New Zealand Dollar (NZD), as investors see limited risks across markets and remain upbeat about growth. Such sentiment usually improves the outlook for commodities and so-called ‘commodity currencies’, including the Kiwi. During market turmoil or economic uncertainty, however, investors typically move out of riskier assets and into more stable safe havens, tending to weaken the NZD.