NZD/USD jumps above 0.5850 as US Dollar slides further, RBNZ policy in focu

25 Nov 2024, 14:26 by Sagar Dua · FXStreet

NZD/USD surges above 0.5850 as the US Dollar extends its upside.
The US Dollar plummets as investors expect Bessent to favor a more balanced tariff and taxation policy.
Investors expect the RBNZ to cut interest rates by 50 bps to 4.25% on Wednesday.

The NZD/USD pair climbs above 0.5850 in the North American session on Monday. The Kiwi pair strengthens as the US Dollar (USD) extends its correction that was driven by a selection of veteran hedge fund manager Scott Bessent as Treasury Secretary by President-elect Donald Trump. The US Dollar Index (DXY), which tracks the Greenback’s value, had a weak opening near 106.80 and extends its downside to near 106.60.

The reaction from market participants was negative for the US Dollar (USD) as Treasury yields dived after bond markets gave a warm welcome to a seasoned hedge fund manager on expectations that he would bring fiscal discipline to the economy. "Bessent is seen as an antidote to Trump's most extreme economic views, XTB’s Kathleen Brook said. She added, “Bessent favors less government spending and is expected to advocate a slow and steady approach to potentially inflationary trade tariffs.”

Bessent also said in his interview with the Financial Times (FT) that he would focus on putting tariffs into action, cutting spending, and maintaining the status of the Greenback as the world's reserve currency.

For fresh guidance on United States (US) interest rates, investors look for the Personal Consumer Expenditure Price Index (PCE) data for October, which will be published on Wednesday. The PCE report is expected to show that price pressures grew at a faster pace on a year-on-year basis and rose steadily on month from readings in September.

The inflation data will influence market speculation for the Federal Reserve (Fed) interest rate decision for the December meeting. According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 4.25%-4.50% in December is 56%, while the rest supports borrowing rates to remain steady.

Meanwhile, the New Zealand Dollar (NZD) will be guided by the Reserve Bank of New Zealand (RBNZ) interest rate decision, which will be announced on Wednesday. According to a Reuters poll, the RBNZ is expected to cut interest rates by 50 bps to 4.25%. This would be the second straight 50 bps interest rate cut by the RBNZ and the third one of the current rate-easing cycle.

Economic Indicator

RBNZ Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) announces its interest rate decision after its seven scheduled annual policy meetings. If the RBNZ is hawkish and sees inflationary pressures rising, it raises the Official Cash Rate (OCR) to bring inflation down. This is positive for the New Zealand Dollar (NZD) since higher interest rates attract more capital inflows. Likewise, if it reaches the view that inflation is too low it lowers the OCR, which tends to weaken NZD.

Why it matters to traders?

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by Governor Adrian Orr’s press conference.

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