NZD/USD softens below 0.5950 as traders brace for US CPI inflation release
- NZD/USD weakens to near 0.5930 in Thursday’s early European session.
- Barclays analysts expect the Fed to start rate cuts this month and see three reductions in total for 2025.
- RBNZ’s Hawkesby reiterated that the projection is for the OCR to fall by another half-percentage point by year’s end.
The NZD/USD pair drifts lower to around 0.5930 during the early European session on Thursday, pressured by a rebound in the US Dollar (USD). Investors might turn cautious ahead of the US Consumer Price Index (CPI) for August later on Thursday.
Barclays analysts predict three straight rate cuts by the Federal Reserve (Fed) by the end of the year. They forecast a 25 basis points (bps) reduction in September, October, and December. Traders ramp up bets of Fed rate cuts after a disappointing Nonfarm Payrolls (NFP) report, which has led to some suggestions of a jumbo reduction. This, in turn, could weigh on the Greenback and create a tailwind for the pair.
Nonetheless, a deeper cut is considered unlikely due to remaining caution among some FOMC policymakers. Financial markets are now fully pricing in a 25 bps rate cut at the Fed's September meeting, while the possibility of a larger 50 bps reduction has also risen to nearly 12%, according to the CME FedWatch tool.
On Thursday, the Reserve Bank of New Zealand (RBNZ) Governor Christian Hawkesby reiterated that the Official Cash Rate (OCR) is projected to reach 2.5% by the end of the year. Hawkesby added that the pace of reductions will depend on incoming data, and further data on the speed of New Zealand’s economic recovery will influence the future path of the OCR.
The RBNZ resumed rate cuts at its August meeting after pausing in July as the sputtering recovery eased concerns about an uptick in price pressures. Policymakers will continue to watch the second-round impacts of US tariff policies on both global growth and New Zealand businesses. Any signs of weakness in the New Zealand economy could drag the Kiwi lower 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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