NZD/USD remains depressed around mid-0.5700s amid mildly positive USD
- NZD/USD turns lower for the third straight day on Friday amid a modest USD strength.
- The Fed’s projected two 25 bps rate cuts and geopolitical risks underpin the Greenback.
- China’s stimulus optimism could help limit losses for the antipodean currency – Kiwi.
The NZD/USD pair struggles to capitalize on the overnight bounce from the 0.5725-0.5720 area and attracts fresh sellers during the Asian session on Friday. Spot prices currently trade with mild negative bias around mid-0.5700s, down for the third straight day amid a modest US Dollar (USD) uptick.
The Federal Reserve (Fed) earlier this week maintained its forecast for only two 25 basis points rate cuts by the end of this year. Adding to this, Fed Chair Jerome Powell said that the progress in achieving the inflation target could see a delay in the wake of the tariff retaliation by other countries on the US. This, in turn, is seen acting as a tailwind for the Greenback, which is looking to build on this week's bounce from a multi-month low and acting as a headwind for the NZD/USD pair.
Apart from this, persistent geopolitical risks stemming from fresh conflicts in the Middle East and the protracted Russia-Ukraine war lend additional support to the safe-haven buck. However, the growing acceptance that the Fed would resume its rate-cutting cycle sooner than expected, amid concerns over a tariff-driven US economic slowdown, might hold back the USD bulls from placing aggressive bets. This, in turn, should help limit any further downside for the NZD/USD pair.
This, along with the latest optimism over China's stimulus measures announced recently, should support antipodean currencies, including the New Zealand Dollar (NZD). In the absence of any relevant market-moving economic releases from the US, the fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that the NZD/USD pair's uptrend witnessed since the beginning of this month has run out of steam and positioning for further losses.
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.