NZD/USD flat lines around 0.6235-6240 area, remains close to monthly top set on Thursday

NZD/USD struggles to gain any meaningful traction amid mixed fundamental cues.
The Fed’s signal for more rate cuts and a positive risk tone undermines the USD.
China’s economic woes seem to cap antipodean currencies, including the Kiwi.

Haresh Menghani FXStreet

The NZD/USD pair seesaws between tepid gains/minor losses through the Asian session on Friday and currently trades around the 0.6235-0.6240 region, well within the striking distance of the monthly peak touched the previous day.

The US Dollar (USD) struggles to attract buyers and languishes near the YTD low touched on Wednesday amid bets for more interest rate cuts by the Federal Reserve (Fed), which, in turn, is seen lending some support to the NZD/USD pair. In fact, Fed members forecasted another 50 basis points fall in borrowing costs by the end of this year and projected the benchmark rates to fall to 3.4% in 2025, down from a prior forecast of 4.1%, before declining to 2.9% in 2026.

Apart from this, the risk-on rally across the global equity markets turns out to be another factor undermining demand for the safe-haven Greenback and benefiting the risk-sensitive Kiwi. That said, persistent worries about an economic slowdown in China act as a headwind for antipodean currencies, including the New Zealand Dollar (NZD). That said, hopes for additional stimulus should continue to lend support to the NZD/USD pair and limit any meaningful decline.

The National Development and Reform Commission of the People's Republic of China (NDRC), during a news conference on Thursday, promised that it will roll out a batch of incremental measures with good effects in a timely manner. China's state planner sounded confident of achieving full-year economic and social development goals. This, however, failed to impress bulls, warranting caution before positioning for an extension of the NZD/USD pair's one-week-old uptrend.

There isn't any relevant market-moving economic data due for release from the US on Friday. That said, a scheduled speech by Philadelphia Fed President Patrick Harker might influence the USD price dynamics. Apart from this, the broader risk sentiment should contribute to producing short-term trading opportunities around the NZD/USD pair. Nevertheless, spot prices remain on track to register strong weekly gains for the first time in the previous three.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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