- NZD/USD struggles to gain meaningful traction amid mixed fundamental signals.
- Fed signal of further rate cuts and positive risk tone undermine USD.
- China’s economic problems appear to be limiting its antipodean currencies, including the Kiwi.
The NZD/USD pair is swinging between tepid gains and mild losses during the Asian session on Friday and is currently trading around the 0.6235-0.6240 region, well within range of the monthly high touched the previous day.
The US Dollar (USD) is struggling to attract buyers and is weakening near the year-on-year low touched on Wednesday amid bets on further interest rate cuts by the Federal Reserve (Fed), which, in turn, is seen lending some support to the NZD/USD pair. In fact, Fed members forecast another 50 basis point drop in borrowing costs by the end of this year and projected benchmark rates to fall to 3.4% in 2025, from a previous forecast of 4.1%, before declining to 2.9% in 2026.
Apart from this, the recovery in global equity markets turns out to be another factor undermining the safe-haven demand for the US Dollar and benefiting the risk-sensitive Kiwi. That said, lingering concerns over an economic slowdown in China act as a headwind for antipodean currencies including the New Zealand Dollar (NZD). That said, hopes for additional stimulus should continue to lend support to the NZD/USD pair and limit any significant downside.
The National Development and Reform Commission of the People’s Republic of China (NDRC), during a press conference on Thursday, promised that it will implement a set of incremental measures with good effects in a timely manner. China’s state planner sounded confident of achieving the full-year economic and social development goals. However, this failed to impress the bulls, warranting caution before positioning for an extension of the NZD/USD pair’s week-long uptrend.
There is no major market-moving economic data scheduled for release in the US on Friday. That said, a scheduled speech by Philadelphia Fed President Patrick Harker could influence the USD price dynamics. Apart from this, the overall risk sentiment should help produce short-term opportunities around the NZD/USD pair. Nevertheless, spot prices remain on track to post strong weekly gains for the first time in the past three weeks.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the health of the New Zealand economy and the policies of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. Developments in the Chinese economy tend to move the Kiwi because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely translate into fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor that moves the NZD is dairy prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also push up bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate spread, or how rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and can encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive that overall market risks are low and are optimistic about growth. This often translates into a more favourable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
