NZD/USD weakens to near 0.5950 as cooler CPI hints at early rate cuts by RBNZ
- NZD/USD softens to near 0.5960 in Tuesday’s Asian session.
- Softer New Zealand CPI inflation has fueled the prospect of an RBNZ interest rate cut in August.
- Concerns over the Fed independence might help limit the pair’s losses.
The NZD/USD pair edges lower to around 0.5960 during the Asian trading hours on Tuesday. The New Zealand (NZD) softens against the Greenback as fresh inflation data in New Zealand rose less than forecast in the June quarter.
Data released by Statistics New Zealand on Monday showed that New Zealand’s Consumer Price Index (CPI) climbed 2.7% YoY in the second quarter (Q2) of 2025 versus 2.5% prior. This figure came in softer than the expectation of 2.8%. On a quarterly basis, the CPI inflation eased to 0.5% in Q2 from 0.9% in Q1 and below the market consensus of 0.6%.
Signs of cooling inflation in New Zealand point to the likelihood of at least one additional rate cut from the Reserve Bank of New Zealand (RBNZ) over the remainder of the year. Following the inflation report, the markets are now pricing in nearly 85% chance that the RBNZ will reduce the cash rate by a further 25 basis points (bps) in the August meeting.
However, the renewed concerns over the US Federal Reserve (Fed) independence might cap the downside for the pair. US President Donald Trump on Sunday denied a Wall Street Journal report suggesting Treasury Secretary Scott Bessent talked him out of firing Federal Reserve Chair Jerome Powell. This action came after a White House official said that Trump is likely to fire Fed’s Powell soon.
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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