NZD/USD trades near weekly high, around 0.6035 area on softer USD

NZD/USD prolongs its weekly uptrend for the third straight day amid a weaker USD.
Fed rate cut bets and the Israel-Iran ceasefire continue to undermine the Greenback.
Bets more RBNZ rate cuts and trade uncertainties warrant caution for the NZD bulls.

Haresh Menghani FXStreet

The NZD/USD pair attracts fresh buyers near the 0.6000 psychological mark during the Asian session on Wednesday and climbs back closer to the weekly top touched the previous day. Spot prices currently trade near the 0.6030-0.6035 area and look to prolong a three-day-old recovery momentum from a one-month low set at the start of this week amid a weaker US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near a one-week low touched on Tuesday amid the growing acceptance that the Federal Reserve (Fed) will lower borrowing costs further this year. The USD bulls seem rather unimpressed by Fed Chair Jerome Powell's relatively hawkish testimony on Tuesday, reaffirming the wait-and-see rate policy amid expectations that US President Donald Trump's trade tariffs will boost inflation.

Meanwhile, the optimism over the Israel-Iran ceasefire, which came into effect on Tuesday, remains supportive of the upbeat market mood. This turns out to be another factor undermining the Greenback's safe-haven status and benefiting the risk-sensitive Kiwi. The NZD/USD pair draws additional support from the better-than-expected domestic data, showing that New Zealand posted a monthly trade surplus of NZ$1.235 billion in May and the annual deficit stood at NZ$3.79 billion.

However, the growing acceptance that the Reserve Bank of New Zealand (RBNZ) will cut rates further on the back of lower inflation and economic headwinds stemming from US tariffs might hold back the NZD bulls from placing aggressive bets. Even from a technical perspective, the recent repeated failures near the 0.6065-0.6070 supply zone make it prudent to wait for a sustained move beyond the said barrier before positioning for any further appreciating move.

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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