NZD/USD rises above 0.5850 as risk aversion eases
- NZD/USD gains on easing tensions after Trump signaled pausing tariffs on Europe over Greenland.
- The US Dollar may gain support as expectations grow that the Fed will maintain a cautious policy stance.
- Traders await Friday’s Q4 CPI to gain the RBNZ’s policy outlook.
NZD/USD extends its winning streak for the fifth consecutive session, trading around 0.5860 during the early European hours on Thursday. The pair gains ground as the New Zealand Dollar (NZD) receives support amid easing risk aversion after US President Donald Trump said he would step back from imposing tariffs on goods from European nations opposing his effort to take possession of Greenland.
However, the upside of the NZD/USD pair could be limited as the US Dollar (USD) could also gain ground from the easing of the tariff war between the United States (US) and the European Union (EU). President Trump also noted that the United States and the North Atlantic Treaty Organization (NATO) had “formed the framework of a future deal regarding Greenland.” However, he did not outline the parameters of the so-called framework, and it remained unclear what the agreement would entail.
Additionally, the Greenback could receive support from rising expectations of cautious sentiment surrounding the Federal Reserve (Fed) policy outlook. Fed officials have indicated limited urgency to ease policy without clearer evidence that inflation is moving sustainably toward the 2% target, even as markets still price in 50 basis points of rate cuts later this year.
Traders await US weekly Initial Jobless Claims, Gross Domestic Product Annualized, and Personal Consumption Expenditures Prices (PCE) inflation data due later in the day for fresh signals in the US economy.
In New Zealand, traders will focus on Friday’s Q4 CPI for insight into the Reserve Bank of New Zealand’s (RBNZ) policy outlook, with annual inflation expected to rise to 3%, the top of its 1–3% target range. An upside surprise could reinforce expectations for higher interest rates.
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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