NZD/USD falls toward 0.6000 after reaching six-month highs

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NZD/USD halts its winning streak that began on January 16, trading around 0.6010 during the Asian hours on Wednesday. The pair edges lower as the US Dollar (USD) rebounds after registering over 1% losses in the previous session, as traders position ahead of the Federal Reserve (Fed) policy decision.

NZD/USD retreats after hitting a six-month high of 0.6051 on Tuesday.
The Fed is expected to keep rates unchanged at 3.50%–3.75% after its two-day meeting on Wednesday.
The New Zealand Dollar strengthened as firmer inflation boosted expectations of a potential RBNZ rate hike later this year.

The Federal Reserve is expected to leave rates steady at 3.50%–3.75% after its two-day meeting on Wednesday, following three straight cuts in 2025. Attention will turn to the post-meeting press conference for signals on the policy path ahead.

The “Sell America” narrative continues to dominate sentiment, with the US Dollar Index (DXY) sliding to its lowest level since February 2022. Jonas Goltermann, Deputy Chief Markets Economist at Capital Economics, said the dollar’s decline is mainly driven by reports that the US Treasury is considering direct currency intervention. Meanwhile, President Donald Trump said the USD’s value is “great,” comments that added to selling pressure on the currency.

Statistics New Zealand reported that annual consumer inflation rose to 3.1% in Q4, above the central bank’s target range. The firmer inflation reading strengthened expectations of a possible RBNZ rate hike later this year.

Markets now await New Zealand’s December trade data on Thursday, which is expected to show a muted balance. In China, New Zealand’s close trading partner, January PMI data will be in focus following December’s strong manufacturing and services readings.

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.