NZD/USD strengthens above 0.6000, eyes on US Initial Jobless Claims release
- NZD/USD gains traction to near 0.6010 in Thursday’s early Asian session.
- The RBNZ left its benchmark interest rate unchanged at its July meeting.
- Traders brace for the US weekly Initial Jobless Claims, which is due later on Thursday.
The NZD/USD pair extends the rally to around 0.6010 during the early Asian session on Thursday. The New Zealand Dollar (NZD) strengthens against the Greenback as the Reserve Bank of New Zealand struck a cautious tone in its latest policy meeting. Traders will keep an eye on the US weekly Initial Jobless Claims, which is due later on Thursday.
The RBNZ held the Official Cash Rate (OCR) steady at 3.25% at its July meeting on Wednesday, citing an elevated level of uncertainty and near-term risks to inflation. The New Zealand central bank has paused the easing cycle for the first time since it started reducing rates in August 2024. The current borrowing cost is at the lowest level since August 2022.
Policymakers said the decision to hold the interest rate would allow the central bank to assess whether weakness in the domestic economy is persisting and how inflation and inflation expectations evolve before their next meeting in August. Volkmar Baur, FX Analyst at Commerzbank, said that policy update points to continued caution on the part of the RBNZ, "and we continue to assume that it will take at most one more step before the cycle ends. This should support the NZD."
On the USD’s front, US President Donald Trump on Tuesday said he would impose a 50% tariff on imported copper and soon introduce long-threatened levies on semiconductors and pharmaceuticals, raising fears of a global trade war.
The US and China agreed to a trade framework in June that restored a fragile truce, but with many details still unclear. Investors will closely monitor the developments surrounding the US-China trade agreement. Any renewed trade tensions 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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