Home Forex News NZD/USD Under Pressure As RBNZ Contemplates Negative Interest Rates

NZD/USD Under Pressure As RBNZ Contemplates Negative Interest Rates

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  • Struggling NZ Economy
  • Negative Interest rate Talk
  • Improving U.S Economic Releases

NZD/USD remained range-bound, in early Wednesday trading session, after plunging from three-month highs early in the week. The NZ dollar has continued to weaken against the dollar amidst concerns about the long term effects of the COVID-19 pandemic

NZ Economy Contraction

Investment Bank Westpac, warning that the New Zealand economy is staring at a long road to recovery following COVID-19, continues to weigh heavily on the NZD strength. A resurgent U.S dollar amidst the escalation of coronavirus infections in the U.S and China has also continued to push the pair lower.

Faced with an economy that is struggling to bounce back despite the country going 24-days without reporting new coronavirus cases, New Zealand central bank is ready to act. The governor, Adrian Orr, has confirmed they are open to approving negative interest rates if that is what will revitalize the economy.

The Reserve Bank of New Zealand has so far refrained from negative interest rates opting for quantitative easing and asset purchases. However, as the situation becomes dire as the COVID-19 pandemic continue to rattle the global economy, negative interest rates could come into play.

Even as the RBNZ talks about the negative interest rate, the Federal Reserve has refrained from the push opting for stimulus plans to stimulate the U.S economy. A confirmation of the corporate bond-buying program is the latest stimulus policy that the FED hopes will boost liquidity levels in the U.S economy.

NZD/USD Outlook

The U.S dollar has continued to strengthen against the NZ dollar as a plethora of positive economic releases continues to affirm the U.S economy. A 17.7% increase in retail sales in May is the latest catalysts fuelling strength in the U.S dollar, conversely sending the NZD/USD pair lower.

Looking forward, the focus is on FED chair Jerome Powell’s testimony that should continue to sway traders’ sentiments on the dollar similarly influence NZD/USD direction of trade. The market also awaits the release of U.S Building Permits, and Housing Starts for May.

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