- NZD/USD appreciates as market sentiment improves following the postponement of Trump’s reciprocal tariffs.
- Weaker US Retail Sales data has intensified speculation that the Fed may lower interest rates only later in the year.
- The RBNZ is widely anticipated to lower its interest rates by 50 basis points to 3.75% on Wednesday.
NZD/USD extends its winning streak for the third successive day, trading around 0.5740 during the early European hours on Monday. Liquidity during the North American session may remain thin as all major US financial markets will be closed on Monday for the federal holiday, Presidents' Day.
This upside of the NZD/USD pair is attributed to improved market sentiment, supported by US President Donald Trump's decision to delay the implementation of reciprocal tariffs. Additionally, the US Dollar (USD) weakens as a disappointing US retail sales report has reignited speculation that the Federal Reserve (Fed) may cut interest rates later this year, despite ongoing inflation concerns.
Data from the US Census Bureau on Friday showed that US Retail Sales fell by 0.9% in January, following a revised 0.7% increase in December (previously reported as 0.4%). This decline was sharper than the market’s expectation of a 0.1% drop.
The US Dollar Index (DXY), which tracks the US Dollar's performance against six major currencies, remains under pressure for the third consecutive session due to weaker US Treasury yields. As of writing, the DXY hovers around 106.70, while yields on 2-year and 10-year US Treasury bonds stand at 4.26% and 4.47%, respectively.
The Reserve Bank of New Zealand (RBNZ) is scheduled to meet on Wednesday and is expected to lower interest rates by 50 basis points to 3.75%. The central bank is also likely to signal a more gradual pace of further reductions, aiming for a rate of 3.0% or 3.25% by the end of the year. Meanwhile, the Business NZ Performance of Services Index (PSI) increased to 50.4 in January, up from a revised 48.1 in December, marking a return to a slight expansion in the services sector after ten months of contraction.
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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