- NZD/USD trades with mild gains around 0.5805 in Tuesday’s early Asian session.
- The prospect of a further US rate cut could drag the US Dollar lower and create a tailwind for the pair.
- Traders await the release of the FOMC Minutes later on Tuesday.
The NZD/USD pair posts modest gains near 0.5805 during the early Asian trading hours on Tuesday. Expectations for the US Federal Reserve (Fed) interest rate cuts in 2026 weigh on the US dollar (USD) against the New Zealand Dollar (NZD). The release of the Federal Open Market Committee (FOMC) Minutes will take center stage later on Tuesday. Financial markets are expected to trade on thin volumes as traders prepare for the New Year holiday.
The US central bank delivered the third and final rate cut this year at its December policy meeting, bringing the federal funds rate to a target range of 3.50% to 3.75%. Fed Chair Jerome Powell said during the press conference that future policy decisions will be dependent on incoming economic data, particularly regarding inflation and the labor market.
According to the CME FedWatch tool, traders have priced in nearly a 16.1% chance that the Fed will reduce interest rates at its next policy meeting in January.
The US Pending Home Sales rose 3.3% MoM in November after an upwardly revised 2.4% gain in October, the National Association of Realtors revealed on Monday. This figure came in above the market consensus of 1.0% and registered its highest level since February 2023.
Analysts believe the rate-cutting cycle of the Reserve Bank of New Zealand (RBNZ) is likely finished for now, which could provide some support to the Kiwi against the Greenback. The New Zealand central bank cut the Official Cash Rate (OCR) by 25 basis points (bps) to 2.25% at its November meeting. The RBNZ signaled that future rate changes will depend on the economic and inflation outlook.
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.
