NZD/USD strengthens above 0.5800 despite rising RBNZ rate cut bets
- NZD/USD trades on a stronger note around 0.5820 in Thursday’s early European session.
- Recent New Zealand GDP figures were weaker than expected, fueling bets of additional policy easing.
- Traders will closely watch the Fedspeak and the final reading of US Q2 GDP data later on Thursday.
The NZD/USD pair gains ground near 0.5820, snapping the two-day losing streak during the early European trading hours on Thursday. However, the potential upside for the New Zealand Dollar (NZD) might be limited amid expectations that the Reserve Bank of New Zealand (RBNZ) might cut rates further before new Governor Anna Breman takes charge on December 1.
Anna Breman has been appointed the new RBNZ Governor and will begin her role in early December. Acting Governor Christian Hawkesby will preside over the upcoming October and November meetings, where additional rate cuts are likely, as the recent New Zealand Gross Domestic Product (GDP) came in weaker than expected.
Financial markets are now pricing in an aggressive rate cut before Breman's first meeting in February 2026, with some forecasts suggesting a substantial 50 basis points (bps) reduction at the RBNZ’s upcoming meeting next month.
Fed Chair Jerome Powell noted that the US central bank shifts its focus toward supporting employment as signs point to a weakening labor market. Powell further stated that future decisions will depend on incoming economic data, especially concerning inflation and employment trends.
Market reactions were mixed, reflecting different opinions among Fed officials. Traders will take more cues from the Fedspeak later on Thursday for more cues about the future path of monetary policy. Any dovish comments from the Fed policymakers could drag the Greenback lower and create a tailwind for the pair. Also, the final print of the US Gross Domestic Product (GDP) growth for the second quarter (Q2) is due later on the same day.
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.
Recommended Articles
