NZD/USD keeps the red above 0.5900 after NZ budget, downside seems cushioned
- NZD/USD drifts lower as NZ’s fiscal restraint lifts bets for more rate cuts by the RBNZ.
- US fiscal concerns and Fed rate cut bets undermine the USD and support spot prices.
- Renewed US-China trade tensions might cap any attempted move higher for the Kiwi.
The NZD/USD pair extends the previous day's late pullback from the 0.5965-0.5670 area, or a one-week high, and attracts some follow-through selling during the Asian session on Thursday. Spot prices drop to the 0.5920 region, or a fresh daily low after New Zealand's Budget release, though the downside remains cushioned amid the prevalent US Dollar (USD) selling bias.
The New Zealand government emphasized fiscal prudence and forecast a narrower budget deficit of NZ$14.74 billion for the fiscal year ending June 2025, compared to a deficit of NZ$17.32 billion projected in its half-year fiscal update in December. Meanwhile, the fiscal restraint comes amid economic challenges amid the trade uncertainty and lifts bets for more rate cuts by the Reserve Bank of New Zealand (RBNZ). This, in turn, exerts some pressure on the Kiwi and the NZD/USD pair.
Meanwhile, the USD selling bias remains unabated on the back of worries that US President Donald Trump's dubbed "One Big, Beautiful Bill" will worsen the US budget deficit at a faster pace than previously expected. Furthermore, the growing acceptance that the Federal Reserve (Fed) will lower borrowing costs further this year amid easing inflationary pressures and a sluggish economic growth outlook dragged the USD to a two-year low. This, in turn, helps limit losses for the NZD/USD pair.
The NZD bulls, however, might refrain from placing aggressive bets amid renewed US-China trade tensions, which tend to dent demand for antipodean currencies, including the Kiwi. In fact, China accused the US of abusing export control measures and violating Geneva trade agreements after the US issued guidance warning companies not to use Huawei's Ascend AI chips. This, in turn, warrants some caution before positioning for any meaningful appreciating move for the NZD/USD pair.
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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