NZD/USD rallies to 0.5825-0.5830 amid weaker USD; eyes monthly top ahead of US data
- NZD/USD scales higher for the second straight day amid a combination of supporting factors.
- Dovish Fed expectations undermine the USD and boost spot prices amid a positive risk tone.
- The RBNZ’s hawkish stance further benefits the NZD and backs the case for additional gains.
The NZD/USD pair attracts some follow-through buyers for the second consecutive day and climbs back closer to the monthly peak during the first half of the European session. Spot prices currently trade around the 0.5825 region, up nearly 0.60% for the day, and seem poised to climb further amid the prevalent US Dollar (USD) selling bias.
US Treasury Secretary Scott Bessent floated the idea that the new Federal Reserve (Fed) chair could scrap the dot plot and also flagged possible changes to the central bank's inflation framework and communications. This comes on top of expectations that the new Fed chair will be an uber-dovish and slash interest rates regardless of the economic fundamentals, which, in turn, fails to assist the USD to capitalize on last week's recovery from its lowest level since early October.
Apart from this, a generally positive tone around the equity markets drags the safe-haven buck to a one-week low and benefits the risk-sensitive Kiwi. Furthermore, the Reserve Bank of New Zealand's (RBNZ) hawkish stance on the future policy path acts as a tailwind for the New Zealand Dollar (NZD). RBNZ Governor Ann Breman had said that the Official Cash Rate (OCR) is likely to remain at its current level for an extended period if economic conditions unfold as expected.
This, in turn, validates the near-term positive outlook for the NZD/USD pair and backs the case for a further appreciating move. Traders now look forward to the US economic docket – featuring the delayed release of the prelim Q3 GDP report and Durable Goods Orders later during the North American session. Apart from this, comments from influential FOMC members would drive the USD demand, which, along with the broader risk sentiment, should produce some impetus.
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.