Forex News

News source: FXStreet
May 23, 13:10 HKT
Japanese Yen remains flat despite BoJ keeping JGB amounts unchanged
  • The Japanese Yen remains flat ahead of the US PMI release on Thursday.
  • Japan's Manufacturing PMI climbed to 50.5 in May from April's 49.6, suggesting the first expansion since May 2023.
  • The US Dollar gained ground after the FOMC Minutes cast doubt on the Fed's willingness to proceed with rate cuts.

The Japanese Yen (JPY) remains flat despite the Bank of Japan (BoJ) announcing on Thursday that it left the Japanese government bonds (JGB) amounts unchanged compared to the previous operation. Over a month ago, the BoJ trimmed the amount of 5-10 years it bought in a scheduled operation.

The JPY avoided to cheer the Purchasing Managers Index (PMI) data from Japan that showed that private sector growth hit a nine-month high in May as manufacturing activity returned to expansion.

The US Dollar (USD) remains slightly tepid ahead of the US PMI data due on Thursday. However, the Greenback gained ground on Wednesday, with the release of minutes from the latest Federal Open Market Committee (FOMC) policy meeting on Wednesday.

Federal Reserve (Fed) policymakers have voiced worries regarding the slow progress on inflation, which has demonstrated greater persistence than initially anticipated at the beginning of 2024. Consequently, the Fed is cautious about moving forward with interest rate cuts.

Daily Digest Market Movers: Japanese Yen remains calm amid US PMI

  • Tensions are escalating following Lai Ching-te's assumption of office as Taiwan's new president. Chinese state media reports indicate that China has deployed numerous fighter jets and conducted simulated strikes in specific areas in the region, including actions from naval vessels.
  • Japan’s Manufacturing Purchasing Managers Index (PMI), released monthly by Jibun Bank and S&P Global, rose to 50.5 in May from April’s 49.6, surpassing market expectations of 49.7. This marks the first growth since May 2023. Meanwhile, the Services PMI fell to 53.6 from the previous 54.3, still indicating the fastest expansion in eight months.
  • On Wednesday, Japan's Merchandise Trade Balance showed that the trade deficit increased to ¥462.5 billion in April, swinging from the previous surplus of ¥387.0 billion. This outcome exceeded market expectations of a deficit of ¥339.5 billion. The deficit was mainly driven by the recent depreciation of the JPY, which led to an increase in the value of imports, outweighing gains from a rise in exports.
  • Japan’s 10-year government bond yield surpassed 1% on Wednesday for the first time since May 2013, fueled by traders' increasing bets that the Bank of Japan would tighten policy further in 2024
  • According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has seen a slight downtick to 50.7%, compared to 51.6% a day ago.
  • Federal Reserve Bank of Boston President Susan Collins spoke at the event titled "Central Banking in the Post-Pandemic Financial System" on Tuesday. Collins stated that progress toward interest rate adjustment will take longer and emphasized that patience is the right policy for the Fed, per Reuters.

Technical Analysis: USD/JPY remains above the level of 156.50

The USD/JPY pair trades around 156.70 on Thursday. A rising wedge on a daily chart indicates a bearish turn as the price of the USD/JPY pair moves toward the wedge’s tip. However, the momentum indicator 14-day Relative Strength Index (RSI) is still positioned slightly above the 50 mark. A further decline would be considered as the momentum shift.

The USD/JPY pair could retest the upper boundary of the rising wedge near the psychological barrier at 157.00. A break above this level could propel the pair toward the recent high of 160.32.

On the downside, the lower threshold of the rising wedge would act as immediate support, followed by the 21-day Exponential Moving Average (EMA) at 155.49. A break below this level could exert downward pressure on the USD/JPY pair, potentially moving it toward the throwback support at 151.86.

USD/JPY: Daily Chart

Japanese Yen price today

The table below shows the percentage change of the Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the New Zealand Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.03% -0.03% -0.07% -0.09% 0.02% -0.28% -0.06%
EUR 0.01%   -0.03% -0.05% -0.09% 0.04% -0.27% -0.06%
GBP 0.03% 0.01%   -0.02% -0.06% 0.06% -0.25% -0.03%
CAD 0.05% 0.02% 0.01%   -0.05% 0.07% -0.24% -0.02%
AUD 0.10% 0.07% 0.07% 0.03%   0.11% -0.19% 0.03%
JPY -0.01% -0.03% -0.07% -0.07% -0.13%   -0.34% -0.10%
NZD 0.29% 0.27% 0.25% 0.24% 0.19% 0.30%   0.23%
CHF 0.07% 0.04% 0.03% 0.01% -0.03% 0.09% -0.21%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

 

May 23, 09:29 HKT
Gold price extends the decline on Fed's hawkish stance
  • Gold price trades with a negative bias on Thursday. 
  • The hawkish stance of the FOMC minutes from last month's meeting might cap the precious metal’s upside. 
  • Investors will focus on the first reading of US PMI data for May, due on Thursday.  

Gold price (XAU/USD) attracts some sellers on Wednesday. The further upside of the yellow metal might be limited, as the FOMC minutes were interpreted as significantly more hawkish than previous releases. The cautious approach of the US Fed to hold its restrictive policy for longer boosts the Greenback broadly and exerts some selling pressure on the gold price. 

Gold traders will closely watch the preliminary reading of the US Manufacturing and Services Purchasing Managers Index (PMI) for May. A weaker reading might trigger hope for Fed rate cuts and support gold. Additionally, geopolitical tensions, uncertainties, and sticky inflation could support the precious metal and cap the downside in the near term. Apart from this, the Chicago Fed National Activity Index, weekly Initial Jobless Claims, New Home Sales, and Fed’s Bostic will be in focus. 

Daily Digest Market Movers: Gold price remains sensitive to the Fed’s hawkish remarks

  • The minutes from the recent policy meeting of the FOMC released Wednesday indicated that “participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective.”
  • The minutes further stated that “participants assessed that maintaining the current target range for the federal funds rate at this meeting was supported by data indicating continued solid economic growth.” 
  • Investors have priced in nearly a 60% chance of the first cut to happen in September and two reductions of a quarter percentage point before the end of the year, according to the CME FedWatch Tool.
  • The preliminary of US S&P Global Manufacturing and Service PMI is expected to remain unchanged at 50.0 and 51.3 in May, respectively. 
  • The People's Bank of China (PBoC) has been the largest buyer among its worldwide counterparts over the past year. Its addition of 225 tonnes to its gold reserves last year was the highest on record since at least 1977.

Technical Analysis: Gold price keeps the bullish picture on the daily chart, eyes are on a Bearish Divergence

Gold price trades softer on the day. The constructive view of the yellow metal remains intact as it is above the key 100-period Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index (RSI) holds above the bullish zone near 56.10, supporting the buyers for the time being. Nonetheless, XAU/USD has formed a bearish divergence as the price has moved to an all-time high on May 20, but the RSI indicator has formed lower highs, suggesting the momentum is slowing and there will likely be a correction or consolidation in price in the near term.

The key resistance level for the precious metal will emerge near the the upper boundary of Bollinger Band and an all-time high of $2,450. A break above this level will expose the $2,500 psychological round mark. 

On the downside, a low of May 13 at $2,332 acts as an initial support level for gold. The additional downside filter to watch is the lower limit of the Bollinger Band at $2,270. A breach of the mentioned level will see a drop to the 100-period EMA of $2,216. 

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.43% -0.15% 0.54% 1.08% 0.60% 0.26% 0.63%
EUR -0.44%   -0.58% 0.14% 0.67% 0.19% -0.15% 0.21%
GBP 0.16% 0.57%   0.69% 1.23% 0.77% 0.44% 0.78%
CAD -0.55% -0.13% -0.68%   0.54% 0.06% -0.27% 0.08%
AUD -1.09% -0.67% -1.24% -0.55%   -0.48% -0.83% -0.46%
JPY -0.60% -0.19% -0.76% -0.07% 0.46%   -0.34% 0.01%
NZD -0.26% 0.15% -0.45% 0.28% 0.82% 0.34%   0.36%
CHF -0.66% -0.22% -0.80% -0.10% 0.45% -0.03% -0.38%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

 

May 23, 11:01 HKT
Australian Dollar edges higher amid improved risk appetite, US PMI eyed
  • The Australian Dollar appreciates ahead of US PMI data on Thursday.
  • Australia's Consumer inflation expectations dropped to 4.1% in May from 4.6% in April, hitting the lowest point since October 2021.
  • FOMC Minutes suggested a lack of progress on inflation, casting doubt on the Fed's willingness to proceed with rate cuts.

The Australian Dollar (AUD) halts its three-day losing streak on Thursday, possibly driven by the improved risk appetite. However, the Aussie Dollar came under pressure following the Consumer Inflation Expectation, released by the Melbourne Institute. Consumer expectations of future inflation over the next 12 months fell to 4.1% in May from 4.6% in April, marking the lowest level since October 2021.

Australian private sector activity remained expansionary for the fourth straight month in May. The preliminary Judo Bank Composite Purchasing Managers Index (PMI) decreased to 52.6 in May from April’s reading of 53.0, indicating a slight moderation in growth. The growth was mainly fueled by an expansion in the services sector, while the decline in manufacturing output slowed down.

The US Dollar (USD) remains strong following recent gains, as the minutes from the latest Federal Open Market Committee (FOMC) policy meeting were released on Wednesday. Federal Reserve (Fed) policymakers expressed concerns about the lack of progress on inflation, which has proven to be more persistent than expected at the start of 2024. As a result, the Fed is hesitant to proceed with interest rate cuts.

Daily Digest Market Movers: Australian Dollar inches higher due to risk-on mood

  • Tensions are escalating following Lai Ching-te's assumption of office as Taiwan's new president. Chinese state media reports indicate that China has deployed numerous fighter jets and conducted simulated strikes in specific areas in the region, including actions from naval vessels.
  • The Judo Bank Australia Services PMI was 53.1 in May, down from April’s reading of 53.6. This marks the fourth consecutive month of expansion, albeit at a slower yet still solid pace. The Manufacturing PMI remained unchanged at 49.6 in May, indicating that manufacturing conditions continued to deteriorate for the fourth consecutive month.
  • The ASX 200 Index moves below 7,800 on Thursday due to declines in mining and energy stocks following a significant drop in commodity prices. Additionally, Australian shares were influenced by a weak performance on Wall Street overnight after FOMC meeting minutes suggested concerns about the slow progress on inflation.
  • According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has seen a slight downtick to 50.7%, compared to 51.6% a day ago.
  • Federal Reserve Bank of Boston President Susan Collins spoke at the event titled "Central Banking in the Post-Pandemic Financial System" on Tuesday. Collins stated that progress toward interest rate adjustment will take longer and emphasized that patience is the right policy for the Fed, per Reuters. Fed Governor Christopher Waller stated that he needs to see several more months of favorable inflation data before he would be comfortable supporting an easing in policy.
  • Minutes from the RBA meeting in May 2024 showed that the board considered raising rates but ultimately judged the case for maintaining a steady policy to be stronger. Policymakers agreed that it was challenging to either rule in or rule out future changes in the cash rate. They noted that the flow of data had increased the risk of inflation remaining above the target for an extended period.

Technical Analysis: Australian Dollar remains below a key level of 0.6650

The Australian Dollar trades around 0.6620 on Thursday. The Analysis of the daily chart indicates a weakening of a bullish bias as the AUD/USD pair has breached below the lower boundary of the rising wedge. Despite this, the 14-day Relative Strength Index (RSI) remains slightly above the 50 level. However, a further decline in this momentum indicator could confirm a bearish bias.

The psychological support level of 0.6600 is significant. A continued decline may increase pressure on the AUD/USD pair, potentially leading it toward the throwback support region at 0.6470.

Conversely, the nine-day Exponential Moving Average (EMA) at 0.6639 could pose immediate resistance, followed by the major level of 0.6650. Breaking above the lower boundary of the rising wedge could reinforce the prevailing bullish bias for the AUD/USD pair.

AUD/USD: Daily Chart

Australian Dollar price today

The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the strongest against the Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.05% -0.08% -0.09% -0.19% 0.03% -0.37% -0.09%
EUR 0.05%   -0.04% -0.02% -0.13% 0.09% -0.31% -0.05%
GBP 0.08% 0.04%   0.01% -0.10% 0.13% -0.28% -0.01%
CAD 0.08% 0.02% 0.00%   -0.09% 0.12% -0.29% -0.03%
AUD 0.19% 0.14% 0.10% 0.10%   0.22% -0.18% 0.09%
JPY -0.03% -0.08% -0.14% -0.11% -0.24%   -0.39% -0.14%
NZD 0.39% 0.31% 0.27% 0.29% 0.17% 0.39%   0.28%
CHF 0.10% 0.05% 0.01% 0.02% -0.09% 0.14% -0.27%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

RBA FAQs

The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.

While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.

Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.

Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.

 

May 23, 11:48 HKT
USD/INR recovers ahead of India/US PMI data
  • Indian Rupee trades softer on Thursday.
  • Foreign outflows in India and the Fed’s hawkish remarks exert some selling pressure on the INR. 
  • Investors will closely monitor the preliminary May PMI data from India and the US, which is due on Thursday. 

Indian Rupee (INR) struggles to gain ground on Thursday. The hawkish stance from the FOMC Minutes and the Federal Reserve (Fed) policymakers boosts the Greenback and creates a tailwind for the pair. Additionally, the foreign outflows ahead of India's upcoming election outcome weigh on the INR. However, the potential foreign exchange intervention from the Reserve Bank of India (RBI) might cap the INR’s weakness in the near term. 

Market players will keep an eye on the preliminary India’s HSBC Purchasing Managers Index (PMI) for May on Thursday. Also, the first reading of the US S&P Global PMI will be due later in the day. In case the report shows a stronger-than-estimated reading, this might delay the timing of a rate cut cycle, underpinning the US Dollar (USD). 

Daily Digest Market Movers: Indian Rupee weakens amid foreign outflows and the Fed’s hawkish stance

  • Food prices remain high in India and may keep inflation elevated, according to the Reserve Bank of India's (RBI) latest ‘state of the economy’ report.
  • Foreign investors sold Indian equities worth more than $3 billion in May, the biggest monthly outflow since January 2023.
  • The FOMC released the minutes of the April 30 - May 1 policy meeting on Wednesday, indicating that inflation in recent months had shown a lack of further progress toward the Fed’s 2% objective.”
  • The Fed Policymakers are likely to keep its benchmark rate unchanged at least until September after their confidence in lowering price pressures was eroded by higher-than-expected inflation in the first three months of the year.
  • Financial markets continue to adjust their expectations for rate cuts this year, with nearly a 60% chance of the first reduction in September, according to the CME FedWatch tool.

Technical analysis: USD/INR’s positive stance seems fragile on the daily chart

The Indian Rupee trades on a weaker note on the day. The USD/INR pair has formed the Head and Shoulders pattern since March 21. The bullish outlook of the pair seems vulnerable as the pair hovers around the key 100-day Exponential Moving Average (EMA) and the neckline on the daily chart. A cross below this level will resume its downtrend, with the 14-day Relative Strength Index (RSI) holding below the 50-midline.  

The 83.20–83.25 regions act as a crucial support level for USD/INR, portraying the confluence of the 100-day EMA and the neckline. A breach of this level will see a drop to the 83.00 psychological mark, followed by a low of January 15 at 82.78. 

On the bright side, the first upside target will emerge at the right shoulder of the Head and Shoulders pattern of 83.54 (high of May 13). A bullish breakout above the mentioned level would end up invalidating the chart pattern and see a rally to a high of April 17 at 83.72, en route to 84.00. 

 

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.04% -0.06% -0.08% -0.18% 0.01% -0.32% -0.08%
EUR 0.04%   -0.02% -0.02% -0.14% 0.06% -0.28% -0.05%
GBP 0.06% 0.03%   0.00% -0.12% 0.09% -0.25% -0.03%
CAD 0.06% 0.02% -0.01%   -0.12% 0.08% -0.26% -0.03%
AUD 0.19% 0.14% 0.12% 0.10%   0.19% -0.14% 0.09%
JPY -0.01% -0.06% -0.10% -0.08% -0.20%   -0.35% -0.13%
NZD 0.32% 0.28% 0.26% 0.25% 0.14% 0.33%   0.24%
CHF 0.10% 0.05% 0.03% 0.03% -0.09% 0.11% -0.23%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Indian Rupee FAQs

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.

The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.

Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.

Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.

 

May 23, 10:39 HKT
NZ FinMin Willis: Government deficit expected to be larger next year than it is this year

New Zealand's (NZ) Finance Minister Nicola Willis said in a speech on Thursday that The (government's) deficit is expected to be larger next year than it is this year, before starting to improve."

Additional quotes

Treasury estimates structural operating deficit of around 1.5% of GDP in current financial year.

Expect an uplift in capital funding in the budget.

The NZ governemnt is set to release the release its budget and fiscal forecasts on May 30.

Market reaction

NZD/USD is defending 0.6100 despite the discouraging comments from the NZ official. The pair is up 0.20% on the day, as of writing. 

New Zealand Dollar FAQs

The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.

The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.

Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.

The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.