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NZD/USD strengthens to near 0.5750 on renewed Fed independence concerns

  • NZD/USD gathers strength to near 0.5745 in Monday’s early Asian session.
  • Fed’s Powell said that  the US Justice Department has threatened criminal charges against him in connection with his Senate testimony last June.
  • RBNZ’s Breman said that the policy rate is likely to remain at its current level for an extended period if economic conditions unfold as expected. 

The NZD/USD pair attracts some buyers to near 0.5745, snapping the four-day losing streak during the Asian session on Monday. The renewed concerns over the US Federal Reserve (Fed) independence exert some selling pressure on the US Dollar (USD) against the Kiwi.

The New York Times reported on Sunday that federal prosecutors opened a criminal investigation into Fed Chair Jerome Powell over the central bank's renovation of its Washington headquarters and whether Powell lied to Congress about the scope of the project.

Powell stated that the threat is not about his testimony or the renovation project but a pretext, adding that threat of criminal charges is a consequence of Fed setting interest rates based on its assessment of the public interest rather than the president's preferences. Powell described the move as unprecedented and a direct challenge to the Fed’s independence.

The Reserve Bank of New Zealand's (RBNZ) hawkish outlook on the future policy path could lift the NZD. RBNZ Governor Ann Breman said that the policy rate is likely to remain at its current level for an extended period if economic conditions unfold as expected. Economists anticipate the Official Cash Rate (OCR) to remain at 2.25% for a period, potentially until mid-2027, before gradually increasing.  

New Zealand Dollar FAQs

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.

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.

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.

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.

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Lallalit Srijandorn

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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