NZD/USD drops to near 0.5650 as US Dollar appreciates ahead of Initial Jobless Claims

NZD/USD extends its losing streak due to the hawkish tone surrounding the Fed’s policy stance.
US weekly Initial Jobless Claims could show an increase of 220K for the previous week, up from the prior 217K.
The New Zealand Dollar failed to gain momentum despite the fresh stimulus measures from New Zealand and China.

Akhtar Faruqui FXStreet

NZD/USD continues to remain subdued for the third consecutive session, trading around 0.5660 during the European hours on Thursday. The pair’s downside is attributed to the stronger US Dollar (USD) amid hawkish sentiment surrounding the US Federal Reserve’s (Fed) policy stance.

According to the CME FedWatch tool, traders are confident that the Fed will keep its key borrowing rates in the range of 4.25%-4.50% in the upcoming three policy meetings. Moreover, US President Donald Trump’s policies could drive inflationary pressures, potentially limiting the Fed to just one more rate cut in 2025.

President Trump stated that his administration is considering imposing a 10% tariff on Chinese imports starting February 1. However, the proposed tariff is significantly lower than the previously threatened 60% rate, it aligns with the pledge Trump made during his presidential campaign.

Traders will likely monitor Friday's release of the preliminary US S&P Global Purchasing Managers Index (PMI) and the Michigan Consumer Sentiment Index for January. These indicators are likely to provide valuable insights into near-term economic trends.

The New Zealand Dollar (NZD) struggled to gain momentum on Thursday, despite the introduction of fresh stimulus measures from New Zealand and its key trading partner, China. New Zealand’s Prime Minister Christopher Luxon announced plans to ease foreign investment regulations, aiming to attract and support overseas investors. However, the NZD remained under pressure, reflecting broader market concerns and cautious sentiment.

Chinese authorities introduced several measures to stabilize its stock markets, including allowing pension funds to increase investments in domestic equities. A pilot scheme enabling insurers to purchase equities will be launched in the first half of 2025, with an initial scale of at least 100 billion Yuan.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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