NZD/USD rebounds above 0.5750 as traders expect more Fed rate cuts
- NZD/USD rises as the US Dollar weakens on expectations of two more Federal Reserve rate cuts in 2026.
- Markets brace for President Trump to nominate a new Fed chair in May, potentially favoring lower interest rates.
- The New Zealand Dollar gains support from rising expectations of an RBNZ interest rate hike.
NZD/USD halts its five-day losing streak, trading around 0.5760 during the Asian hours on Friday. The pair appreciates as the US Dollar (USD) loses ground over expectations of two more Federal Reserve rate cuts in 2026.
Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates. The Fed lowered interest rates by 25 basis points (bps) at the December meeting, bringing the target range to 3.50%–3.75%. The Fed delivered a cumulative 75 bps of rate cuts in 2025 amid a cooling labor market and still-elevated inflation.
The CME FedWatch tool shows an 85.1% probability of rates being held at the Fed’s January meeting, up from 84.5% a week earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 14.9% from 15.5% a week ago.
However, the Federal Open Market Committee’s December Meeting Minutes suggested a divided policy outlook. Most participants felt it would likely be appropriate to pause further rate cuts if inflation continues to ease, while some officials argued for keeping rates unchanged for a period following three cuts in 2025 aimed at supporting a weakening labor market.
The New Zealand Dollar (NZD) also finds support from stronger expectations of a rate hike by the Reserve Bank of New Zealand (RBNZ). Recent data showed the economy rebounded in the third quarter, reinforcing signs of a modest recovery after a prolonged period of weakness. RBNZ Governor Anna Breman added that interest rates are likely to remain at current levels for some time.
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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