NZD/USD weakens to near 0.5750 as upbeat GDP fails to lift Kiwi
- NZD/USD weakens to near 0.5760 in Friday’s early European session.
- The upbeat New Zealand GDP fails to boost the Kiwi.
- The prospect of further US interest rate cuts could weigh on the US Dollar and cap the pair’s downside.
The NZD/USD pair attracts some sellers to around 0.5760 during the early European trading hours on Friday, pressured by renewed US Dollar (USD) demand. Traders will keep an eye on the University of Michigan Consumer Sentiment Index and UoM Consumer Inflation Expectations data later on Friday.
New Zealand’s Gross Domestic Product (GDP) grew by 1.1% in the third quarter (Q3). This reading followed a revised 1.0% contraction in Q2. Despite robust activity across most sectors, the Reserve Bank of New Zealand (RBNZ) maintains that the policy rate will likely remain at 2.25% through 2026, keeping the Kiwi range-bound in the near term, said BBH FX analysts.
The cooler-than-expected US inflation report has increased speculation that the US Federal Reserve (Fed) may continue cutting interest rates in early 2026, though officials have cautioned that more "clean" data is needed following the shutdown disruptions. This, in turn, could exert some selling pressure on the Greenback and help limit the pair’s losses in the near term.
Financial markets are now pricing in nearly a 26.6% odds the US central bank will reduce interest rates at its next meeting in January, after it cut them by a quarter-point at each of its last three meetings, according to the CME FedWatch tool.
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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