NZD/USD rebound from nearly two-week low, remains vulnerable below 0.6000
- NZD/USD attracts some buyers after RBNZ Governor Breman’s hawkish comments on Thursday.
- The less dovish FOMC Minutes assist the USD in preserving gains, capping the upside for the pair.
- The fundamental backdrop also warrants caution before positioning for any meaningful upside.
The NZD/USD pair recovers slightly from the vicinity of mid-0.5900s or a nearly two-week low set during the Asian session on Thursday, and recovers a part of the previous day's dovish Reserve Bank of New Zealand (RBNZ)-inspired losses. Spot prices, however, lack bullish conviction and currently trade around the 0.5975 region, up less than 0.15% for the day.
The RBNZ kept its Official Cash Rate (OCR) at 2.25% at the end of the February policy meeting on Wednesday and reiterated an accommodative policy outlook amid expectations that inflation will return to the target over the next year. Traders were quick to react and pushed back the likely timing for a rate hike further into late-2026. This, in turn, is seen acting as a headwind for the New Zealand Dollar (NZD) and the NZD/USD pair.
That said, RBNZ's new Governor Anna Breman said this Thursday that we would act to tighten earlier if we see pricing behaviours change, a much stronger economic recovery that can sustain higher interest rates. This, along with a positive tone around the equity markets, offers some support to the risk-sensitive Kiwi and the NZD/USD pair. However, a bullish US Dollar (USD) might keep a lid on any meaningful appreciating move for the currency pair.
The USD Index (DXY), which tracks the Greenback against a basket of currencies, preserves the previous day's gains led by the less dovish FOMC Minutes, which showed that policymakers were split over the timing of further rate cuts. Several officials indicated that more rate cuts could be warranted if inflation declines as expected, while others cautioned that easing too early amid elevated inflation could compromise the Federal Reserve’s (Fed) 2% target.
Meanwhile, reports suggest that the US military is prepared to strike Iran as early as this weekend, which keeps geopolitical risks in play. This turns out to be another factor underpinning the Greenback's safe-haven status and might contribute to capping the NZD/USD pair. Traders now look to the US macro data, which, along with speeches from influential FOMC members, will drive the USD and provide some impetus later during the North American session.
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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