NZD/USD holds positive ground above 0.5850, US Jobless Claims in focus

NZD/USD drifts higher to near 0.5865 in Thursday’s Asian session.
Fed Chair Powell said a strong US economy is letting the central bank be cautious about cutting interest rates.
The rising expectation of further rate cuts by the RBNZ might weigh on the Kiwi.

Lallalit Srijandorn FXStreet

The NZD/USD pair recovers some lost ground to around 0.5865 amid a modest decline in the US Dollar (USD) during the Asian trading hours on Thursday. However, the weakening of the Greenback might be limited amid the cautious stance of the Federal Reserve (Fed). Traders will keep an eye on the US weekly Initial Jobless Claims on Thursday ahead of the highly anticipated Nonfarm Payrolls (NFP) data.

Financial markets anticipate the US Fed to reduce its benchmark interest rate by another quarter percentage point from its current target range of 4.5%-4.75%. The Fed policymaker cut a combined three-quarters of a point at its September and November meetings. However, several Fed officials have expressed some concern about the recent uptick in the inflation rate, indicating a cautious approach to policy as they watch the data. This, in turn, might lift the USD and act as a headwind for the pair.

The Fed’s Beige Book survey released on Wednesday suggested that US economic activity increased slightly in November after little change in preceding months, and US businesses grew more upbeat about demand prospects. Additionally, Fed Chair Jerome Powell said that the US economy is in better shape than expected, allowing Fed officials to potentially slow the pace of interest-rate cuts ahead.

On the other hand, the Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr signalled the likelihood of further monetary easing in the near future. The dovish remarks from the RBNZ policymaker and lacklustre domestic economic data undermine the Kiwi. Traders have priced in a nearly 68% possibility of a 25 basis points (bps) rate cut in February 2025.

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

Lallalit Srijandorn

FXStreet

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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