NZDUSD Fundamental Analysis – 25-July-2024

The New Zealand dollar (NZD) has recently declined to around $0.591, marking its lowest point since early May. This drop is primarily attributed to the intensified risk-off sentiment in financial markets, which has led to a broad sell-off in global stock markets.

When investors become risk-averse, they tend to move away from riskier assets like the NZD, causing its value to drop.

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Impact of Rate Cut Speculations by the Reserve Bank of New Zealand

Adding to the NZD’s downward pressure is the growing speculation about potential early rate cuts by the Reserve Bank of New Zealand (RBNZ). With inflationary pressures easing, many market participants believe the central bank might reduce interest rates sooner than expected.

Currently, the RBNZ is 44% likely to cut rates in its upcoming August meeting. Lower interest rates typically make a currency less attractive to investors, weakening the NZD.

China’s Economic Outlook and Its Influence on New Zealand

Another significant factor weighing on the New Zealand dollar is the bleak economic outlook in China. As New Zealand’s economy is heavily dependent on the Chinese market, any negative developments in China can have a substantial impact on New Zealand.

China’s economic struggles have consequently dampened demand for New Zealand’s exports, putting additional pressure on the NZD.

Recent Performance and Market Sentiment

The New Zealand dollar has closed negatively against the US dollar for five consecutive trading sessions, recording a 1.6% decline this week. This persistent weakness highlights the ongoing bearish sentiment towards the NZD in the currency markets.

Anticipation of US Economic Data Releases

Investors are now closely watching for the release of the US Q2 GDP data later today and the PCE inflation report on Friday. These reports are crucial as they will provide insights into the US economy’s health and inflation trends, which can influence global market sentiment and, by extension, the NZD’s performance.

NZDUSD Fundamental Analysis – 25-July-2024

Given the current economic indicators and market sentiment, the New Zealand dollar may continue to face downward pressure in the near term. If the RBNZ proceeds with rate cuts and China’s economic issues persist, the NZD might remain weak.

However, positive surprises in global economic data, particularly from the US, could alter this trajectory by improving investor sentiment and stabilizing the currency. Investors should stay informed about these developments to make well-informed decisions.

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