The NZD/USD pair is gaining momentum to around 0.5745 during the early European session on Monday. The US dollar fell against the New Zealand dollar on renewed concerns about the independence of the US Federal Reserve. Traders will be monitoring US CPI inflation data for fresh momentum, which will be published later on Tuesday.
Tensions between the White House and the Fed escalated over the weekend as Fed Chairman Jerome Powell said the administration threatened him with a criminal indictment related to the renovation of the central bank’s headquarters. Powell described the threats as a “pretext” aimed at pressuring the Federal Reserve to lower interest rates. The dollar is facing some selling pressure after the news and is creating tailwinds for the pair.
“This open war between the Fed and the US administration… is clearly not a good outlook for the US dollar,” said Ray Attrill, head of currency strategy at National Australia Bank.
The Reserve Bank of New Zealand’s (RBNZ) hawkish outlook on the future policy path could provide some support to the New Zealand Dollar (NZD). The central bank noted that the cycle of interest rate cuts has likely been completed, but that “the door is open” for further cuts if the economy performs below its expectations. Most economists expect the RBNZ to keep the official cash rate (OCR) on hold for most of 2026, with some predicting that a rate hike may not happen until late 2026 or early 2027.
On the other hand, US President Donald Trump threatened repercussions if the Iranian authorities targeted civilians, while Tehran warned the United States and Israel against any interference. Rising tensions between the United States and Iran could strengthen safe-haven currency such as the US dollar against the New Zealand dollar.
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.
