New Zealand Dollar edges lower as Fed rate hike bets and Iran tensions underpin USD
- NZD/USD kicks off the new week on a softer note, though it lacks follow-through selling.
- Fed hike bets and escalating US-Iran tensions underpin the USD and weigh on the major.
- The downside seems limited as the focus now shifts to the release of US inflation figures.
The NZD/USD pair attracts some sellers during the Asian session on Monday and currently trades near the 0.5870 region, down around 0.15% for the day. Spot prices, however, remain confined within Friday's broader range, warranting some caution for aggressive bearish traders.
Friday's better-than-expected US Nonfarm Payrolls (NFP) report lifted market bets for a Federal Reserve (Fed) interest rate hike at the September 15-16 meeting amid inflation risks stemming from elevated energy prices. Apart from this, a further escalation of tensions between the US and Iran turned out to be another factor underpinning the safe-haven Greenback, which, in turn, is seen exerting some pressure on the NZD/USD pair.
The New Zealand Dollar (NZD), on the other hand, continues with its relative underperformance on the back of a dovish tilt in the Reserve Bank of New Zealand’s (RBNZ) policy projections. As was widely expected, the RBNZ raised its official cash rate for the second consecutive meeting last week and indicated that the cash rate may need to increase further. However, the forward guidance was interpreted as more cautious.
Kiwi pressured as RBNZ signals less need for further tightening
Brown Brothers Harriman’s Elias Haddad highlights that, while the RBNZ delivered a 25 bps hike to 2.75%, the tone of the statement was notably cautious, with the bank stressing that “this decision reduces the risk that the OCR needs to increase by more later.” Haddad notes that this guidance, alongside an unchanged OCR track peaking near 3.25% versus market expectations closer to 4.00%, underscores scope for a dovish repricing that could continue to weigh on the New Zealand Dollar.
Meanwhile, RBNZ Governor Anna Breman stressed that there is no predetermined path for monetary policy and that the timing of any further rate hike remains highly uncertain. This, in turn, contributes to capping the NZD/USD pair's recent bounce from the 0.5800 mark, or an over one-month low, touched last Wednesday. Traders, however, opt to wait for this week's US inflation figures before placing directional bets.
NZD/USD daily chart
Technical Analysis
The NZD/USD pair holds a mild bullish bias above the 200-day Exponential Moving Average (EMA) at 0.5855 and the 38.2% level at 0.5848. Moreover, last week's bounce from the 50% retracement level at 0.5805 suggests that buyers retain control above these structural floors.
On the topside, immediate resistance appears at the 23.6% Fibo. retracement at 0.5901, with a stronger barrier aligning with the recent swing high near 0.5986. On the downside, initial support is seen at the 200-day EMA at 0.5855, followed by a dense Fibonacci support zone at 0.5848 and 0.5805. A break below there would expose deeper retracement levels at 0.5762, 0.5701 and ultimately the prior base around 0.5624.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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