The NZD/USD pair is attracting some sellers to around 0.5760 during early European trading hours on Friday, under pressure from renewed demand for the US Dollar (USD). Traders will be watching the University of Michigan Consumer Confidence Index and the University of Michigan Consumer Inflation Expectations data later on Friday.
New Zealand’s GDP grew by 1.1% in the third quarter (Q3). This reading followed a revised 1.0% contraction in the second quarter. Despite strong activity in most sectors, the Reserve Bank of New Zealand (RBNZ) maintains that the interest rate is likely to remain at 2.25% until 2026, keeping the New Zealand dollar’s range limited in the near term, BBH FX analysts said.
A cooler-than-expected US inflation report has heightened speculation that the US Federal Reserve may continue to cut interest rates in early 2026, despite officials warning that more “clean” data is needed in the wake of lockdown disruptions. This, in turn, could put some selling pressure on the dollar and help limit the pair’s losses in the near term.
Financial markets now expect a roughly 26.6% chance the US central bank will cut interest rates at its next meeting in January, after it cut them by a quarter of a percentage point at each of its last three meetings, according to the CME FedWatch tool.
Frequently asked questions about the New Zealand dollar
The New Zealand Dollar (NZD), also known as the Kiwi, is a popular currency among investors. Its value is widely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some unique characteristics that could make the New Zealand dollar move as well. The performance of the Chinese economy tends to move the New Zealand dollar because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely mean New Zealand’s exports to the country will decline, affecting the economy and therefore its currency. Another factor that affects the New Zealand dollar is dairy prices as the dairy industry is New Zealand’s main export. Higher dairy prices boost export income, which contributes positively to the economy and therefore the New Zealand dollar.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain inflation between 1% and 3% over the medium term, with a focus on keeping it near the 2% midpoint. To this end, the Bank sets an appropriate level of interest rates. When inflation is very high, the Reserve Bank of New Zealand will increase interest rates to cool the economy, but this move will also cause bond yields to rise, making it more attractive for investors to invest in the country and thus strengthening the New Zealand dollar. Conversely, low interest rates tend to weaken the New Zealand dollar. The so-called spread, or how New Zealand’s interest rates compare or are expected to compare to those set by the US Federal Reserve, can also play a major role in moving the NZD/USD pair.
New Zealand’s macroeconomic data releases 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 New Zealand dollar. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength is accompanied by higher inflation. Conversely, if economic data is weak, the value of the New Zealand dollar is likely to decline.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk, or when investors view broader market risk as low and are optimistic about growth. This tends to lead to a more positive outlook for commodities and so-called “commodity currencies” such as the New Zealand. Conversely, the New Zealand dollar tends to weaken in times of market turmoil or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.
