NZD/USD remains weak near 0.5770 during early Asian trading hours on Thursday. The New Zealand Dollar (NZD) fell against the US Dollar despite a stronger-than-expected New Zealand GDP report. Markets may become cautious ahead of key US inflation data, which is scheduled to be released later on Thursday.
Data released by Statistics New Zealand on Thursday showed the New Zealand economy grew by 1.1% quarter-on-quarter in the third quarter (Q3), compared to a contraction of 1.0% (revised from -0.9%) in the second quarter. This reading was stronger than expectations at 0.9%. GDP in the third quarter expanded by 1.3% year-on-year, versus a decline of 1.1% (revised from -0.6%) in the second quarter, in line with the market consensus. However, the upbeat GDP report failed to boost the New Zealand Dollar (NZD).
The Reserve Bank of New Zealand (RBNZ) has cut the official cash rate (OCR) by 325 basis points since August last year to 2.25% as it seeks to boost the economy. The central bank said in November that its central issue was that the benchmark would remain on hold until 2026, but traders are betting on a rate hike as soon as the third quarter.
The US employment report for November showed that the US labor market remains relatively resilient but is showing signs of slowing. The report reinforces bets on further interest rate cuts by the US Federal Reserve in 2026. Fed funds rate futures now estimate a 31% chance that the Fed will cut interest rates next month immediately after the non-farm payrolls report, compared to 22% immediately before that, according to LSEG estimates. The possibility of a cut in US interest rates next year could weigh on the US dollar and act as a tailwind for the pair.
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.
