NZD/USD recovers early lost ground, moves back above mid-0.5900s amid softer USD
- NZD/USD attracts some dip-buyers on Monday amid a mildly softer US Dollar.
- Reduced Fed rate cut bets could limit deeper USD losses and cap spot prices.
- Trade-related uncertainties further warrant some caution for bullish traders.
The NZD/USD pair reverses a major part of its intraday losses and climbs to the 0.5965 region, or back closer to the daily peak during the early European session on Monday. Spot prices, however, remain confined in Friday's broader range, warranting some caution for aggressive traders.
The USD kicks off the new week on a softer note and remains on the defensive below its highest level since June 23 in the wake of mixed signals about the Federal Reserve's (Fed) rate-cut path. In fact, Fed Governor Christopher Waller last week backed the case for a rate cut in July. This, along with a generally positive risk tone, is seen undermining the safe-haven buck and lending some support to the risk-sensitive Kiwi.
Investors, however, seem convinced that the US central bank will keep interest rates higher for longer amid the evidence that the Trump administration's increasing import taxes are passing through to consumer prices. Apart from, persistent worries about the potential economic fallout from US President Donald Trump's erratic trade policies should limit any meaningful USD losses and keep a lid on the NZD/USD pair.
Hence, it will be prudent to wait for strong follow-through buying before positioning for a further appreciating move for spot prices in the absence of any relevant market-moving economic releases from the US on Monday. Later this week, traders will take cues from the release of the flash global PMIs to grab some short-term opportunities.
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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