NZD/USD hovers near 0.6050 following January's Business NZ PSI data
- NZD/USD holds gains despite New Zealand’s Performance of Services Index easing to 50.9 in January from 51.7.
- US Dollar may weaken after softer January CPI boosted expectations of Fed rate cuts later this year.
- US Consumer Price Index rose 2.4% YoY in January; monthly inflation eased to 0.2%, both below forecasts.
NZD/USD inches higher after registering modest gains in the previous session, trading around 0.6040 during the Asian hours on Monday. The pair maintains its gains after New Zealand’s Performance of Services Index (PSI) slipped to 50.9 in January from 51.7 previously, signaling softer confidence as holiday closures and seasonal slowdowns weighed on enquiries.
The Reserve Bank of New Zealand’s (RBNZ) latest monetary conditions survey showed on Friday that inflation expectations increased over both one-year and two-year horizons for Q1 2026. Two-year expectations, viewed as the period when policy changes feed through to prices, rose to 2.37% in Q1 2026 from 2.28% in Q4 2025. One-year expectations climbed to 2.59% from 2.39% in the previous quarter.
The NZD/USD pair could extend gains as the US Dollar (USD) may soften following weaker January CPI data, reinforcing expectations that the Federal Reserve (Fed) may cut rates later this year. US CPI rose 2.4% YoY in January, easing from 2.7% and below the 2.5% forecast, while monthly inflation slowed to 0.2% from 0.3%.
Meanwhile, Chicago Fed President Austan Goolsbee said in a Yahoo Finance interview that although rates are likely to move lower, further policy easing depends on continued progress in reducing services inflation.
The CME FedWatch tool suggests that investors now assign nearly a 90% probability to the Fed holding rates steady at its March meeting, up from 81% a week earlier. Markets are pricing in roughly two 25-basis-point cuts by the end of the year, with the first move seen in June at around a 52% probability.
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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