New Zealand Dollar Rises on Federal Reserve’s Hawkish Stance

The New Zealand Dollar (NZD) has demonstrated strong performance compared to other major currencies, taking advantage of the positive investor sentiment triggered by the recent policy decision made by the Federal Reserve. The New Zealand dollar exhibited resilience compared to its peers, as the Federal Reserve indicated that the possibility of a rate increase in September was still uncertain. The Fed opted to rely on forthcoming data to inform its future decision-making process.

Ricardo Evangelista, a Senior Analyst at ActivTrades, suggests that the remarks made by Jerome Powell have had a significant impact on investors, resulting in a positive market sentiment that diminishes the attractiveness of the secure US dollar.

As a result, the New Zealand Dollar made gains against the US Dollar, causing the NZDUSD pair to reach a level of 0.6253. This indicates a possible decrease in the strength of the pullback that occurred in July. The GBPNZD exchange rate experienced a slight decline of 0.33% due to the influence of post-Federal Reserve optimism on trading sessions in Asia and Europe. This optimism provided some support to the New Zealand Dollar.

The current level of GBPNZD is 2.0769, suggesting a period of consolidation, although it remains close to its multi-year highs of around 2.09. A potential breakthrough beyond the resistance level of 2.09 has the potential to revive the upward trend. However, it is worth noting that encountering challenging resistance levels could result in continued sideways trading.

David Croy, an ANZ Strategist, maintains a positive outlook on the GBPNZD, characterizing the GBP price movement as favorable. It is observed that the New Zealand dollar witnessed a moderate increase after the Federal Reserve Chair, Powell, delivered his remarks during the post-Federal Open Market Committee (FOMC) press conference. This development coincided with a decrease in the yields of US bonds. Given the absence of noteworthy local data for the rest of the week, attention continues to be directed toward offshore events.

The recent upward movement of the NZD can be attributed to a positive outlook on the global economy and the confidence in the ability of major central banks to manage inflation without causing substantial harm to labor markets. Nevertheless, economists maintain a cautious stance, as they anticipate that the measures taken by central banks, such as the Federal Reserve, to reduce liquidity could potentially result in a recession for several advanced economies, including the United States. The NZD’s prospects would be influenced by its global outlook, especially as other central banks align their base interest rates with the Reserve Bank of New Zealand’s rate of 5.5%. This convergence would diminish the NZD’s carry advantage.

According to David Croy, when the Federal Reserve policy rate aligns with the Official Cash Rate (OCR), the New Zealand Dollar (NZD) no longer benefits from a carry advantage. As a result, constructing a positive outlook for the NZD is becoming progressively difficult, indicating that aiming for stability may be the most desirable outcome to anticipate.