NZD/USD edges lower below 0.5800 despite robust New Zealand Q3 GDP growth

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The NZD/USD pair remains weak near 0.5770 during the early Asian trading hours on Thursday. The New Zealand Dollar (NZD) edges lower against the Greenback despite a stronger-than-expected New Zealand Gross Domestic Product (GDP) report.

NZD/USD softens to around 0.5770 in Thursday’s early Asian session.
New Zealand’s economy grew by 1.1% QoQ in Q3, stronger than expected.
Traders raise their bets of a January Fed rate cut after the US NFP report for November.

Data released by Statistics New Zealand on Thursday showed that New Zealand’s economy grew by 1.1% QoQ in the third quarter (Q3), compared with a 1.0% contraction (revised from -0.9%) in Q2. This reading came in stronger than the expectations of 0.9%. The third-quarter GDP expanded by 1.3% YoY, versus a fall of 1.1% (revised from -0.6%) in Q2, in line with the market consensus. Nonetheless, the upbeat GDP report fails to boost the New Zealand Dollar (NZD).

The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) by 325 basis points (bps) since August last year to 2.25% as it seeks to boost the economy. The central bank stated in November that its central case was that the benchmark would be on hold through 2026, but traders are wagering on a rate hike as soon as the third quarter.

The US employment report for November showed that the US labor market remains relatively resilient but shows signs of slowing. The report reinforces bets of further rate cuts by the US Federal Reserve (Fed) in 2026. Futures on the federal funds rate are now pricing in a 31% chance the Fed will reduce rates next month immediately after the NFP report, compared with 22% just before, according to LSEG estimates. The prospect of a US interest rate cut next year could weigh on the US Dollar (USD) and act as a tailwind for the 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.