NZD/USD gathers strength above 0.5900 ahead of RBNZ Inflation Expectations release
- NZD/USD drifts higher to around 0.5920 in Wednesday’s early European session.
- Trump said he will make a Fed Governor decision this week.
- New Zealand’s Unemployment Rate came in at 5.2% in Q2, versus 5.3% expected.
The NZD/USD pair gathers strength to near 0.5920 during the early European session on Wednesday. Increased expectations of a Federal Reserve (Fed) rate cut weigh on the US Dollar (USD). Fed officials are scheduled later on Wednesday, including Susan Collins, Lisa Cook and Mary Daly.
A slew of weaker US economic data, including job data and the ISM Services Purchasing Managers Index (PMI) report, boosts bets of a rate cut by the Fed next month. Financial markets have priced in nearly an 84% chance that the US central bank will reduce rates by 25 basis points (bps) in the September meeting, according to the CME FedWatch tool.
Traders will closely watch the developments surrounding the Fed governor’s replacement. Trump said on Tuesday that he will decide on a short-term replacement for Fed Governor Adriana Kugler, who resigned last Friday. He will also soon reveal a nominee for the next Fed Chair. Trump ruled out US Treasury Secretary Scott Bessent as a candidate to succeed current Chairman Jerome Powell, whose term expires in May 2026. Renewed concerns over the Fed’s independence could exert some selling pressure on the Greenback and create a tailwind for the pair.
New Zealand’s Unemployment Rate was 5.2% in the second quarter, according to figures released by Stats NZ today. This compares with 5.1% in the first quarter, below the market consensus of 5.3%. Traders await the Reserve Bank of New Zealand (RBNZ) Inflation Expectations for the third quarter, which is due later on Thursday. A decrease in expectations could undermine the Kiwi against the USD.
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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