NZD/USD holds gains around 0.5900 despite increased risk aversion
- NZD/USD upside may be limited as risk aversion rises after Trump canceled Pakistan talks, dimming US–Iran peace hopes.
- The Federal Reserve is expected to keep rates at 3.50%–3.75% on Wednesday, marking a third consecutive hold.
- Reserve Bank of New Zealand may stay cautious or hike in May to steer inflation back to 2%.
NZD/USD gains ground after registering modest losses in the previous day, trading around 0.5890 during the Asian hours on Wednesday. However, the upside of the pair could be restrained as risk aversion prevails amid fading hopes for renewed US–Iran peace talks after President Donald Trump canceled his special envoy’s planned visit to Pakistan. Meanwhile, shipping through the Strait of Hormuz remains constrained due to Iran’s restrictions and the US naval blockade of Iranian ports.
President Trump expressed dissatisfaction with Iran’s latest proposal to end the conflict and reopen the strategic waterway, which excludes discussions on its nuclear program. This continues to support elevated Crude Oil prices, reviving inflation concerns and reinforcing hawkish expectations for the Federal Reserve.
The US Dollar also remains firm on rising expectations of prolonged higher rates from the Fed. The central bank is widely expected to keep rates unchanged at Wednesday’s April meeting, maintaining the federal funds target range at 3.50%–3.75% for a third straight hold.
The Reserve Bank of New Zealand (RBNZ) is likely to remain cautious or consider tightening to return inflation to the 2% midpoint amid persistent price pressures. Markets are pricing in a May rate hike following a strong first-quarter inflation report, with price pressures expected to intensify further in Q2 as higher energy costs fully feed through. Traders now await RBNZ Governor Anna Breman’s speech later today for further guidance on the policy outlook.
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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