NZD/USD gains ground above 0.5750 despite upbeat US data
- NZD/USD edges higher to around 0.5755 in Friday’s early European session.
- US economic data delays Fed rate cut expectations.
- Traders expect the RBNZ to leave the OCR on hold through 2026.
The NZD/USD pair attracts some buyers near 0.5755 during the early European session on Friday. However, the upside for the pair might be limited in the near term after positive US economic data push out expectations for rate cuts by the US Federal Reserve (Fed).
Data released on Thursday showed that US Initial claims for unemployment benefits declined 9,000 to a seasonally adjusted 198,000 for the week ended January 10. This figure came in lower than the market consensus of 215,000 and was lower than the previous week of 207,000 (revised from 208,000).
The Greenback receives support from better-than-expected US Jobless Claims data, which boosts expectations that the Fed will hold interest rates in the next several months. Morgan Stanley analysts pushed back their bets for rate reductions to June and September, from January and April.
On the other hand, concerns over the Fed’s independence could weigh on the USD and act as a tailwind for the pair. US President Donald Trump stated on Wednesday that he has no plans to fire Powell despite the Justice Department's criminal investigation into the Fed Chair, but it was "too early" to say what he would ultimately do.
The Reserve Bank of New Zealand (RBNZ) signaled that this might be the end of the easing cycle, with the forecast indicating the Official Cash Rate (OCR) could be on hold through 2026. However, RBNZ Governor Christian Hawkesby stated that the central bank retains "full optionality" and could cut again if the economy underperforms.
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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