NZD/USD strengthens to near 0.6050 amid concerns over Fed independence
- NZD/USD gathers strength near 0.6050 in Thursday’s early Asian session.
- Trump considers naming next Fed chair early.
- Traders raise their bets of Fed rate cuts in the July policy meeting.
The NZD/USD pair trades in positive territory around 0.6050 during the early Asian session on Thursday. The US Dollar (USD) weakens against the Kiwi due to concerns about the future independence of the US Federal Reserve (Fed). Traders brace for the US economic data, including the final Q1 GDP Growth Rate, Durable Goods Orders, and weekly Initial Jobless Claims, which are due later on Thursday.
The Wall Street Journal reported early Thursday that US President Donald Trump is considering selecting and announcing a successor for Federal Reserve (Fed) Chair Jerome Powell by September or October. According to one of these sources, Trump's ire against Powell may lead to an even earlier announcement this summer. The concerns of Fed independence and credibility could undermine the Greenback in the near term.
Fed officials still expect to reduce interest rates this year, but the timing remains uncertain as policymakers wait on coming trade deadlines and hope for more certainty about the scope of the tariffs. Financial markets have priced in nearly a 25% chance of a Fed rate cut in July, up from 12% a week ago, according to the CME FedWatch tool.
The New Zealand Dollar (NZD) receives support from stronger Q1 Gross Domestic Product (GDP) data as well as a better-than-expected May Trade Surplus. Traders expect the Reserve Bank of New Zealand (RBNZ) to deliver only one more rate cut in the current easing cycle, likely to be fully priced in by November.
However, caution lingered amid uncertainty over the ceasefire’s durability. Israeli Prime Minister Benjamin Netanyahu warned that Israel “will strike again” if Iran “thinks of rebuilding” its nuclear program. Any signs of renewed escalation could underpin the US Dollar and create a headwind for NZD/USD.
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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