NZD/USD posts modest gains above 0.5850 as traders await Fed’s Powell speech, US PMI data
- NZD/USD strengthens near 0.5865 in Tuesday’s early Asian session.
- Fed slashed interest rates last week and tentatively forecast two more reductions before the end of 2025.
- New Zealand is set to announce a new RBNZ governor on Wednesday.
The NZD/USD pair gathers strength around 0.5865 during the early Asian session on Tuesday. The US Dollar (USD) softens against the New Zealand Dollar (NZD) on growing expectations of a further rate cut from the US Federal Reserve (Fed). The preliminary reading of the US S&P Global Purchasing Managers Index (PMI) reports for September will be in the spotlight later in the day. Also, Fed Chair Jerome Powell is set to speak.
The Fed cut its key interest rate by 25 basis points (bps) at its September meeting and signaled that more reductions are likely this year. The Fed's updated projections imply that two more quarter-points are likely before the year's end. Nonetheless, Fed’s Powell emphasized that the path forward is not pre-set and will depend on incoming economic data.
Traders brace for a series of Fed speeches later this week, including remarks from Fed Chair Jerome Powell on Tuesday for fresh impetus. Any dovish remarks from Fed officials could drag the Greenback lower and create a tailwind for the pair in the near term.
Bloomberg reported earlier on Tuesday that the New Zealand government is set to announce its new Reserve Bank of New Zealand (RBNZ) governor, with an announcement planned for Wednesday. The source said the central bank might appoint a woman to head the central bank for the first time.
The People’s Bank of China (PBoC) kept its benchmark lending rates unchanged for the fourth straight month on Monday despite the Fed interest rate cut last week. China's economic slowdown worsened in August, with a slew of economic data missing expectations. Retail Sales dropped to 3.7% in August as consumption remained sluggish, while Industrial Production eased to 5.2%, its lowest level since August last year. This, in turn, could undermine the China-proxy Kiwi, as China is a major trading partner of New Zealand.
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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