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New Zealand Dollar gathers strength as RBNZ leaves the rate on hold at 2.25%

  • NZD/USD gains momentum around 0.5870 in Wednesday’s Asian session, up 0.70% on the day.
  • The RBNZ kept the Official Cash Rate unchanged at 2.25% on Wednesday, as expected. 
  • Traders brace for the US April PCE Price Index inflation report, which is due on Thursday. 

The NZD/USD pair attracts some buyers to near 0.5870 during the Asian trading hours on Wednesday. The New Zealand Dollar (NZD) edges higher against the US Dollar (USD) after the Reserve Bank of New Zealand (RBNZ) interest rate decision.  

As widely expected, the RBNZ decided to hold its Official Cash Rate (OCR) at 2.25% after concluding the May monetary policy meeting on Wednesday. The New Zealand central bank said in its post-meeting statement that the committee remains focused on bringing medium-term inflation back to target and expects that OCR increases will be required this year.

All members agreed that increasing the interest rate at upcoming meetings would likely be necessary to ensure higher near-term inflation does not feed through to higher medium-term inflation.

Traders will closely monitor RBNZ Governor Dr. Anna Breman’s post-monetary policy meeting press conference at 03:00 GMT for more clues about the interest rate hike outlook this year. 

“Our current forecast is for 50 basis points (bps) of tightening in 2026, though this is highly dependent on energy market dynamics. Swap market pricing is 21 bps for July and 75 bps by year-end,” ING’s FX strategists said.  

The attention will shift to the US April Personal Consumption Expenditures (PCE) Price Index report, which will be published later on Thursday. The headline PCE Price Index is expected to show a rise of 3.8% YoY in April, compared to 3.5% in March. Meanwhile, the core PCE Price Index is projected to show an increase of 3.3% YoY in April, versus 3.2% prior. 

Any signs of hotter inflation in the US could reinforce the expectation of the interest rate hike from the US Federal Reserve (Fed) this year and underpin the Greenback 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.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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