NZD/USD recovers slightly from mid-0.5700s, lowest since April as USD dips ahead of US PCE

NZD/USD finds some support ahead of mid-0.5700s as the USD bulls pause for a breather.
Receding Fed rate cut bets and a softer risk tone could limit any meaningful USD losses.
Traders now look forward to the key US PCE Price Index for a fresh directional impetus.

Haresh Menghani FXStreet

The NZD/USD pair recovers a few pips from its lowest level since April 11, touched during the Asian session earlier this Friday, and climbs to the 0.5770 area in the last hour. Spot prices, for now, seem to have snapped a three-day losing streak, though the upside potential seems limited.

The US Dollar (USD) pauses for a breather following the recent sharp rally to a three-week high as bulls now seem reluctant and opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index before placing fresh bets. This, in turn, is seen as a key factor that offers some support to the NZD/USD pair. Any meaningful USD depreciating move, however, seems elusive in the wake of fading hopes for a more aggressive policy easing by the US Federal Reserve (Fed).

The revised US GDP print showed on Thursday that the economy grew at an annualised 3.8% pace during the second quarter compared to the 3.3% estimated initially. Moreover, US Durable Goods Orders unexpectedly rose by 2.9% in August, while US Initial Jobless Claims dropped to 218K for the week ending September 20 from 232K in the previous week. The data pointed to a still resilient US economy and fueled uncertainty over the pace of Fed rate cuts, which favors the USD bulls.

Apart from this, a generally weaker tone around the equity markets could benefit the Greenback's relative safe-haven status and act as a headwind for the risk-sensitive Kiwi. Against the backdrop of rising geopolitical risks, US President Donald Trump's new round of tariffs on a broad range of imported goods temper investors' appetite for riskier assets. This, along with bets for more interest rate cuts by the Reserve Bank of New Zealand (RBNZ), should cap the NZD/USD pair.

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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