New Zealand Dollar rebounds ahead of US jobs data, election uncertainty lingers
- NZD/USD gains ground to around 0.5610 in Friday’s early European session.
- All eyes will be on the US September jobs report later on Friday.
- The prospect of policy uncertainty in New Zealand could undermine the Kiwi.
The NZD/USD pair recovers some lost ground to near 0.5610, snapping the three-day losing streak during the early European session on Friday. However, the potential upside for the pair might be limited, as rising US Treasury yields and a hawkish stance from the Federal Reserve (Fed) underpin the US Dollar (USD) against the New Zealand Dollar (NZD).
Oil spike from US-Iran tensions raise inflation fears, driving bond yields higher. The 10-year US Treasury yield hit 5.34%, its highest since 2002, in the previous session before retreating to 5.25%. The 30-year Treasury bond yield hovered near levels not seen in 24 years before moderating into the close.
Dallas Fed President Lorie Logan said on Thursday that the central bank will need to raise short-term borrowing costs by at least 50 basis points (bps) to turn monetary policy "modestly restrictive" and get inflation back on track to the Fed’s 2% target.
The US jobs report for September will be the highlight later on Friday. The Nonfarm Payrolls (NFP) is forecast to increase by 90,000 in September after rising by 162,000 in August. Meanwhile, the Unemployment Rate is expected to stay at 4.1% for a third straight month.
On the Kiwi front, closer New Zealand election race raises investor concerns over policy uncertainty, weighing on the domestic currency. New Zealand’s reputation for political stability is facing a test as a closely contested election approaches on November 7, with opinion polls indicating that Prime Minister Christopher Luxon’s coalition could lose power. A change in government raises the prospect of policy uncertainty. If elected, Labour signaled that it would restore that dual mandate, among other policy reversals.
Logan’s hawkish tilt lifts Fed expectations and supports the Dollar
Fed’s Logan delivered a notably more hawkish message, with a 9.2/10 FXS Speechtracker score standing well above the 8.1/10 historical average, underscoring a stronger tightening bias relative to the established baseline. The emphasis that higher long-term yields may reflect rising term premiums, potentially reducing the need for additional tightening, sits in tension with explicit calls for at least 50 bps more in rate hikes and several further moves to revive price stability, reinforcing a narrative that policy is not yet restrictive enough and that inflation will not reach 2% without higher rates. Overall, the combination of stronger economic expansion, a well-balanced labor market, and explicit rate hike guidance points to a clear hawkish signal supportive of the Dollar and U.S. yield curves.
The FXS Fed Sentiment Index rose by 1.68 points to 136.59, confirming a deeper move into hawkish territory well above the neutral 100 threshold and aligning with the elevated FXS Speechtracker score. This upward shift in the FXS Fed Sentiment Index suggests markets should price in a higher-for-longer Fed path, with potential upside pressure on the Dollar and continued sensitivity of risk assets to U.S. rate expectations.
Technical Analysis: NZD/USD keeps bearish tone amid oversold conditions
In the daily chart, NZD/USD extends its slide beneath the Bollinger middle band and the 100-day simple moving average (SMA), which keeps the near-term bias firmly bearish. Price is now holding just above the lower Bollinger band, hinting at stretched downside conditions, while the Relative Strength Index (RSI) at 24.8 sits in oversold territory, suggesting that while selling pressure remains dominant, the pace of the decline could start to moderate.
On the topside, initial resistance emerges at the Bollinger middle band near 0.5725, followed by the 100-day SMA around 0.5810 and the upper Bollinger band at 0.5885, a cluster that would cap any corrective bounce for now. On the downside, the lower Bollinger band at 0.5565 offers immediate support; a decisive break below this floor would open the door to a continuation of the bearish trend, whereas holding above it would favor a short-term consolidation within the current oversold backdrop.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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