NZD/USD hovers around 0.5640, downside likely on RBNZ rate cut bets
- NZD/USD may lose ground as traders expect the RBNZ to deliver at least a 25-basis-point rate cut in November.
- RBNZ Inflation Expectations held steady at 2.28% QoQ in the fourth quarter, remaining within the 1%–3% target range.
- The US Dollar may gain support from optimism that the US government shutdown is close to being resolved.
NZD/USD remains flat after moving sideways during the early hours, trading around 0.5640 during the European hours on Tuesday. The pair remains subdued as the New Zealand Dollar (NZD) faced challenges following the release of the Reserve Bank of New Zealand (RBNZ) Inflation Expectations, which remained consistent at 2.28% for the quarter-over-quarter (QoQ) in the fourth quarter, within the 1%–3% target range.
The New Zealand Dollar struggles as the survey also indicated that most respondents expect the RBNZ to cut rates later this month. Markets largely anticipate a 25-basis-point rate cut to 2.25%, with a slim 10% chance of a deeper 50-basis-point cut, amid rising job losses and the economy edging toward a second recession.
The NZD/USD pair also received downward pressure as the US Dollar (USD) strengthened due to optimism over the US government shutdown nearing a resolution. The US Senate passed a funding bill in a 60–40 vote, effectively ending the 41-day shutdown, with eight Democrats joining Republicans to advance the measure, which now moves to the House for approval.
On Monday, US President Donald Trump supported a bipartisan deal to end the US government shutdown, signaling a likely reopening within days. Senate Majority Leader John Thune said he expects Trump to sign the bill once Congress passes it.
However, the US Dollar pares its daily gains, potentially driven by growing economic uncertainty in the United States (US), which fueled expectations for a near-term Federal Reserve rate cut. The CME FedWatch Tool shows markets pricing in a 62% chance of a 25 bps rate cut in December.
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.
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