NZD/USD struggles to capitalize on intraday gains; remains below 0.6000 amid USD uptick
- NZD/USD regains some positive traction on Thursday, though it lacks follow-through.
- The USD edges higher amid mixed Fed signals and acts as a headwind for spot prices.
- Trade jitters and the RBNZ’s accommodative policy tilt contribute to capping the pair.
The NZD/USD pair attracts some dip-buyers following the previous day's failure near the 0.6000 psychological mark and sticks to its modest intraday gains through the early European session on Tuesday. Spot prices currently trade around the 0.5960-0.5965 region, up 0.10% for the day, though the uptick lacks bullish conviction amid a mixed fundamental backdrop.
The Reserve Bank of New Zealand (RBNZ) Governor Anna Breman said last week 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 signs of stability in the equity markets, offers some support to the risk-sensitive New Zealand Dollar (NZD) and turns out to be a key factor acting as a tailwind for the NZD/USD pair.
That said, the RBNZ reiterated an accommodative policy outlook after keeping the Official Cash Rate (OCR) at 2.25% at the end of the February meeting 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. Apart from this, fresh trade jitters and a modest US Dollar (USD) strength cap gains for the NZD/USD pair.
US President Donald Trump announced a new global levy of 15% following the Supreme Court verdict against his sweeping tariffs last Friday, fueling worries about retaliatory measures and disruptions to global supply chains. This, along with geopolitical risks, might keep a lid on any optimism in the markets, which should benefit the Greenback's safe-haven status amid mixed US Federal Reserve (Fed) signals and cap the NZD/USD pair.
In fact, minutes from the January FOMC meeting showed last week that several Fed officials judged that additional policy easing may not be warranted until there was a clear indication that the progress of disinflation was back on track. That said, traders are still pricing in the possibility of three 25-basis-point (bps) rate cuts this year. This might hold back the USD bulls from placing aggressive bets and limit losses for the NZD/USD pair.
Investors now look forward to Tuesday's US economic docket – featuring the release of the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index. This, along with speeches from influential FOMC members and the broader risk sentiment, will drive the USD demand and the NZD/USD pair. The aforementioned diverging forces, however, warrant some caution before positioning for a firm near-term direction.
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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