NZD/USD clings to gains around 0.6065-0.6070, remains close to YTD peak ahead of US Retail Sales
- NZD/USD trades with a positive bias for the second straight day amid a weaker USD.
- Reduced RBNZ rate cut bets underpin the NZD and further lend support to the major.
- Geopolitical risks might cap the risk-sensitive Kiwi ahead of the crucial FOMC meeting.
The NZD/USD pair attracts some dip-buyers near the 0.6045 area on Tuesday and stalls the previous day's late pullback from its highest level since October 2024. The uptick, however, lacks strong follow-through, with spot prices currently trading around the 0.6065-0.6070 area, up just over 0.10% for the day during the early European session.
The US Dollar (USD) continues with its struggle to attract any meaningful buyers and remains well within striking distance of a three-year low, which, in turn, is seen as a key factor acting as a tailwind for the NZD/USD pair. Traders have been pricing in the possibility that the Federal Reserve (Fed) will resume its rate-cutting cycle in September amid signs of easing inflation and a slowing economy. This, along with US fiscal concerns and trade-related uncertainties, keeps the USD bulls on the defensive.
The New Zealand Dollar (NZD), on the other hand, draws support from domestic data, which showed that the Food Price Index accelerated from 3.8% in April to 4.4% last month, marking the highest level since December 2023. The data comes on top of expectations for just one more interest rate cut by the Reserve Bank of New Zealand (RBNZ) and lends additional support to the NZD/USD pair. Traders, however, seem reluctant to place aggressive directional bets ahead of the key central bank event risk.
The US central bank is scheduled to announce its policy decision at the end of a two-day meeting on Wednesday and is widely expected to maintain the status quo amid the uncertainty surrounding US President Donald Trump's trade policies. Hence, the focus will be on the accompanying policy statement and Fed Chair Jerome Powell's comments during the post-meeting presser. Investors will look for cues about the Fed's future rate-cut path, which will drive the USD and the NZD/USD pair.
In the meantime, traders on Tuesday will take cues from the release of US monthly Retail Sales figures for some impetus later during the early North American session. Meanwhile, the global risk sentiment is weighed down by rising geopolitical tensions in the Middle East. This might further hold back traders from placing bullish bets around the risk-sensitive NZD and contribute to capping the NZD/USD pair, which remains confined in a familiar range held over the past week or so.
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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