NZD/USD moves away from four-month high, slides closer to mid-0.5900s amid profit-taking

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The NZD/USD pair extends the overnight pullback from the 0.6000 psychological mark, or a four-month high, and drifts lower during the Asian session on Tuesday.

NZD/USD drifts lower on Tuesday as profit-taking kicks in ahead of the crucial FOMC meeting.
Fed rate cut bets weigh on the USD amid the ‘Sell America’ trade and could support the major.
Hawkish RBNZ expectations and a positive risk tone could further help limit losses for the Kiwi.

The NZD/USD pair extends the overnight pullback from the 0.6000 psychological mark, or a four-month high, and drifts lower during the Asian session on Tuesday. Spot prices, for now, seem to have snapped a seven-day winning streak and currently trade just above mid-0.5900s, down nearly 0.25% for the day.

In the absence of a fresh fundamental catalyst, bulls opt to take some profits off the table following a strong rally of over 250 pips since early last week amid some repositioning ahead of a two-day FOMC monetary policy meeting starting today. The downside, however, seems limited as traders might opt to wait for more cues about the US Federal Reserve's (Fed) rate-cut path. which will drive demand for the US Dollar (USD) in the near term and provide some meaningful impetus to the NZD/USD pair.

Heading into the key central bank event risk, bets that the US central bank would lower borrowing costs two more times this year, and the so-called 'Sell America' trade keep the USD bulls on the defensive. Moreover, the underlying bullish sentiment fails to assist the buck to register any meaningful recovery from its lowest level since September 2025, touched the previous day, and could act as a tailwind for the risk-sensitive Kiwi. This, in turn, warrants some caution for the NZD/USD bears.

Meanwhile, Statistics New Zealand reported last week that the annual consumer inflation accelerated in the fourth quarter to 3.1%, above the central bank's target range. The hot inflation data reaffirmed expectations that the Reserve Bank of New Zealand (RBNZ) could raise interest rates later this year. This marks a significant divergence in comparison to dovish Fed bets and makes it prudent to wait for strong follow-through selling before confirming that the NZD/USD pair has topped out.

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.