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NZD rises against slow economic growth in the U.S. 

May 31, 2024

Key Points: 

  • New Zealand dollar rises to $0.612 as economic growth in the US is slower than expected, indicating potential for rate cuts. 
  • Investors await US PCE inflation data and the speech from RBNZ Governor Adrian Orr. 

The New Zealand dollar (NZD) climbed to around $0.612 on Thursday with the support from revised economic data indicating that the US economy grew at a slower pace than previously estimated in the first quarter.

This has increased speculation that the Federal Reserve may have room to cut interest rates later this year. 

Picture: NZD appreciating against the USD, as observed on the VT Markets app

Market participants are now focused on the upcoming US Personal Consumption Expenditures (PCE) inflation data, set to be released later today. As the preferred measure of inflation for the Federal Reserve, the PCE data will be closely watched for signals on future monetary policy actions.

A lower-than-expected reading could reinforce expectations of rate cuts, further impacting the USD and other currencies, including the NZD. 

Conservative economic decisions by the New Zealand government 

The New Zealand government released its annual budget report on Thursday, offering modest tax relief and reducing new spending.

The budget aims to address sluggish economic growth, rising unemployment and a weaker balance sheet. This conservative fiscal approach reflects a cautious stance by the government in facing ongoing economic challenges. 

Market participants are also awaiting a speech by Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr, following the policy decision by the central bank last week. Orr’s comments will be scrutinized for insights into the outlook on inflation, interest rates and overall economic conditions.  

What will happen to the NZD? 

The NZD may experience further volatility depending on the US PCE inflation data and the speech of Governor Orr. A dovish stance from the Fed could strengthen the NZD, while a hawkish outlook from the RBNZ may further support the currency.  

Related article: Interest rate tug-of-war for central banks: Hawkish vs dovish 

In the longer term, the economic conditions and fiscal policies of New Zealand will play a crucial role in determining the performance of its currency. 

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