NZD/USD loses traction to near 0.5600 ahead of RBNZ rate decision
- NZD/USD weakens to near 0.5600 in Tuesday’s early European session.
- The RBNZ is set to deliver a 25 bps cut to the OCR to a three-year low.
- Fed's Waller said the December rate cut is appropriate.
The NZD/USD pair attracts some sellers to around 0.5600 during the early European session on Tuesday. The New Zealand Dollar (NZD) weakens the US Dollar (USD) on the prospect of the Reserve Bank of New Zealand (RBNZ) rate cut on Wednesday. Traders brace for the release of the US ADP Employment Change Weekly, Retail Sales, and Producer Price reports, which will be published later on Tuesday.
The RBNZ is expected to deliver a 25 basis points (bps) cut to 2.25% at its November policy meeting on Thursday. Some analysts argue for a jumbo 50 bps reduction, citing concerns over New Zealand's stalled economic recovery. The attention will shift to the central bank's press conference and forecasts and how wide it leaves the door open for a further rate cut next year if needed.
"Our base case is that November will bring the last OCR cut, but the risk remains for further easing in 2026," ASB chief economist Nick Tuffley said.
On the USD’s front, increased bets of the US Federal Reserve (Fed) rate cut following the dovish remarks from policymakers could weigh on the Greenback and cap the downside for the pair. Fed Governor Christopher Waller said on Monday that available data indicate that the labour market remains weak enough to warrant another quarter-point cut at the December meeting. Meanwhile, San Francisco Fed President Mary Daly noted that she supports easing interest rates next month because she saw a sudden deterioration in the job market, as both are more likely and harder to manage than an inflation flare-up.
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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