NZD/USD drifts lower as rate hike expectations fade
|- NZD/USD drifts lower after a dovish RBNZ hold and fresh tariff uncertainty.
- The RBNZ held the Official Cash Rate (OCR) at 2.25% last week, with new Governor Anna Breman signaling policy will stay accommodative for some time and pushing back on near-term tightening expectations.
- US Conference Board consumer confidence edged up to 91.2 in February, while President Trump's new 15% global tariffs following the Supreme Court ruling continue to weigh on risk-sensitive currencies.
NZD/USD slipped 0.14% on Tuesday, settling close to 0.5960 in a narrow session. The pair is trading above its key moving averages, but bullish momentum has waned. Since peaking close to 0.6090 in early February, price has pulled back in a series of lower highs while holding above the 0.5940 area, forming a descending wedge
The Reserve Bank of New Zealand's (RBNZ) February hold at 2.25% was widely expected, but Governor Breman's dovish tone caught markets off guard. Her updated rate track pushed the first potential hike out to late 2026 at the earliest, well behind what traders had priced in, and overnight index swaps softened around eight basis points in response. Market pricing for a September hike has since dropped to about 40% from 68% before the meeting. The policy contrast with the Reserve Bank of Australia (RBA), which raised rates to 3.85% earlier in February, is growing and continues to cap upside potential for the Kiwi.
On the US side, consumer confidence improved marginally to 91.2 in February, though the expectations component has now spent 13 consecutive months below the 80 recession-warning threshold. Trump's new 15% global tariff announcement added a layer of risk-off pressure.
Pullback toward the 50-day EMA as Stochastics hit full bear territory
The Stochastic Oscillator has crossed bearish and is drifting toward the oversold zone, suggesting near-term downside momentum still has room to extend. A break below 0.5940 would expose the 50-day EMA, while a reclaim of 0.6000 would be the first sign of buyers re-engaging toward the year-to-date high near 0.6090.
NZD/USD daily chart
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.
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