NZD/USD holds steady above 0.5860 ahead of US GDP release

NZD/USD flat lines near 0.5860 in Thursday’s early Asian session.
The Fed’s John Williams stressed the central bank’s independence as Trump moves to fire Lisa Cook.
Expectations of further RBNZ monetary easing might cap the NZD’s upside.

Lallalit Srijandorn FXStreet

The NZD/USD pair trades on a flat note around 0.5860 during the early Asian session on Thursday. However, concerns about the US Federal Reserve’s (Fed) independence could weigh on the US Dollar (USD) after US President Donald Trump on Monday announced he was removing Lisa Cook over claims of mortgage borrowing impropriety.

Traders continue to assess Trump’s move to fire Cook. Late Tuesday, Trump said that he will soon have a “majority” of his own nominees on the Fed board of governors who will back his desire to cut the interest rates. Meanwhile, New York Fed President John Williams on Wednesday emphasized the importance of central bank independence as Trump looks to exert control over monetary policy. Worries over the Fed’s independence could undermine the Greenback against the New Zealand Dollar (NZD) in the near term.

On the other hand, the upside for the Kiwi might be limited after the Reserve Bank of New Zealand (RBNZ) cut its policy rate last week and signaled further reductions in coming months as policymakers warned of domestic and global headwinds to growth. RBNZ Governor Christian Hawkesby noted that the outlook is data-dependent, though he further stated that if businesses and consumers remain cautious and need more support, that might be something that prompts more action.

Looking ahead, the second estimate of US GDP will be published later on Thursday. The US economy is projected to grow at an annual rate of 3.1% in the second quarter (Q2). Also, the weekly Initial Jobless Claims and Pending Home Sales reports will be released on the same day.

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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