- NZD/USD struggles to gain any meaningful traction as traders now await FOMC meeting Minutes.
- The Fed’s hawkish shift remains supportive of elevated US bond yields and favors the USD bulls.
- Geopolitical risks and trade war fears also contribute to capping the upside for risk-sensitive Kiwi.
The NZD/USD pair stalls the previous day’s retracement slide from a nearly three-week high, albeit it struggles to attract any meaningful buyers and trades around the 0.5630-0.5625 area during the early European session on Wednesday. Traders seem reluctant and opt to await the release of FOMC meeting Minutes before placing fresh directional bets.
Traders on Wednesday will also confront a duo of US labor market report – the ADP report on private-sector employment and the usual Weekly Initial Jobless Claims data. In the meantime, the US Dollar (USD) struggles to capitalize on the overnight move-up led by the upbeat US data, which acts as a tailwind for the NZD/USD pair. The fundamental backdrop, however, warrants some caution before confirming that spot prices have formed a near-term bottom and positioning for an extension of the recent bounce from the 0.5585 area, or the lowest level since October 2022 touched last week.
The Federal Reserve (Fed) adopted a more hawkish stance at the end of the December policy meeting and signaled that it would slow the pace of rate cuts in 2025. This remains supportive of a further rise in the US Treasury bond yields and favors the USD bulls. Apart from this, persistent geopolitical risks, concerns about US President-elect Donald Trump’s tariff plans and the US-China trade war support prospects for the emergence of some dip-buying around the safe-haven buck. This, along with the cautious market mood, should contribute to capping the risk-sensitive Kiwi and the NZD/USD pair.
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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