NZD/USD trades around 0.6050 after pulling back from six-month highs
- NZD/USD retreats after reaching a six-month high of 0.6094 in the previous session.
- ANZ–Roy Morgan Consumer Confidence rose to 107.2 in January from 101.5, its highest since August 2021.
- The USD rises on speculation that President Trump will nominate hawkish former Fed Governor Kevin Warsh as chair.
NZD/USD halts its winning streak that began on January 16, trading around 0.6050 during the Asian hours on Friday. The pair remains subdued following the ANZ – Roy Morgan Consumer Confidence, which climbed to 107.2 in January from 101.5 in December, marking its highest level since August 2021.
The NZD/USD pair may regain its ground as the New Zealand Dollar (NZD) could receive support from increased bets of a near-term interest rate hike by the Reserve Bank of New Zealand (RBNZ).
Upbeat economic data, led by last week’s inflation upside surprise, has bolstered expectations that the Reserve Bank of New Zealand could begin policy tightening later this year. While the RBNZ is broadly expected to keep rates unchanged in February, markets are increasingly pricing in a hike as early as July, with a strong chance of a move by September.
The US dollar (USD) advanced on speculation that President Donald Trump will nominate former Fed Governor Kevin Warsh as the next Federal Reserve chair. Trump said late Thursday he would announce his choice on Friday morning, with markets favoring Warsh, who is seen as a more hawkish option.
However, gains in the greenback may be capped as elevated geopolitical tensions and policy uncertainty in Washington weigh on investor confidence. Recent developments include Trump’s threat of tariffs on countries exporting oil to Cuba and warnings to Iran of possible military action unless it agrees to a nuclear deal.
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.