NZD/USD gathers strength to near 0.5750 on Fed independence concerns
|- NZD/USD gathers strength to near 0.5745 in Monday’s early European session.
- Fed’s Powell called the threat of indictment a pretext to pressure rates.
- The RBNZ’s hawkish stance could underpin the Kiwi.
The NZD/USD pair gains traction to around 0.5745 during the early European session on Monday. The US Dollar (USD) softens against the Kiwi on renewed concerns over the US Federal Reserve (Fed) independence. Traders will keep an eye on the US Consumer Price Index (CPI) inflation data for fresh impetus, which will be published later on Tuesday.
Tensions between the White House and the Fed escalated over the weekend as Fed Chair Jerome Powell said that the administration had threatened him with a criminal indictment related to the central bank headquarters renovation. Powell called the threats a "pretext" aimed at putting pressure on the Fed to cut interest rates. The Greenback faces some selling pressure following the headline and creates a tailwind for the pair.
"This open warfare between the Fed and the U.S. administration ... it's clearly not a good look for the U.S. dollar," said Ray Attrill, National Australia Bank's head of currency strategy.
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 indicated the rate-cutting cycle is likely complete, but the "door is ajar" for further cuts if the economy underperforms its forecasts. Most economists anticipate the RBNZ to keep the Official Cash Rate (OCR) on hold for most of 2026, with some expecting rate hikes might not occur until late 2026 or early 2027.
On the other hand, US President Donald Trump threatened repercussions if Iranian authorities target civilians, while Tehran warned the US and Israel against any intervention. Rising tensions between the US and Iran could boost the safe-haven currency like the USD against the NZD.
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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