The NZD/USD pair is rebounding from its lowest level since early December, around the 0.5725-0.5720 area, which it touched during the Asian session on Monday, and filling the opening of the weekly bearish gap. However, spot prices are struggling to capitalize on the upward movement and are currently trading just above the mid-0.5700s, down 0.15% on the day.
The US dollar continues its recent good recovery movement from a multi-month low reached in December, and is rising to a three-week high amid a global flight to safety, supported by escalating geopolitical tensions. The US Army’s Delta Force, a special forces unit, attacked Venezuela and captured its president, Nicolas Maduro, and his wife on Saturday. This comes on top of the protracted war between Russia and Ukraine, unrest in Iran, and issues surrounding Gaza, which benefits the safe-haven dollar and acts as a headwind to the risk-sensitive New Zealand dollar.
However, the US dollar’s upside appears to be limited following speculation about further interest rate cuts by the Federal Reserve this year. This represents a significant difference from the Reserve Bank of New Zealand’s (RBNZ) hawkish outlook on the future policy path. In fact, Reserve Bank of New Zealand Governor Anne Breyman said the interest rate was likely to remain at its current level for an extended period if economic conditions develop as expected. This in turn supports the New Zealand Dollar (NZD) and limits deeper losses in the NZD/USD pair.
Meanwhile, spot prices moved little after data published by RatingDog showed that China’s services PMI fell to 52.0 in December from 52.1 the previous month. Going forward, traders are now looking to the US ISM Manufacturing PMI release for some momentum later during the North American session. Moreover, this week’s important US economic data, scheduled to be released at the start of a new month, including the closely watched Non-Farm Payrolls (NFP) report, will play a major role in influencing US dollar price dynamics. Apart from this, geopolitical developments should push the NZD/USD pair in the near term.
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 risks 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.
