NZD/USD flat lines above 0.5950 amid dovish hold from RBNZ

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NZD/USD holds steady near 0.5965 in Thursday’s early European session.
RBNZ Governor Breman pushes back hopes of interest rate hikes in the near term.
Fed officials discussed rate hike scenarios at their last meeting.

The NZD/USD pair trades on a flat note around 0.5965 during the early European trading hours on Thursday. However, a dovish hold from the Reserve Bank of New Zealand (RBNZ) weighs on the Kiwi against the US Dollar (USD). The preliminary reading of the US Gross Domestic Product (GDP) for the fourth quarter (Q4), the Personal Consumption Expenditures (PCE) Price Index, and the S&P Global Purchasing Managers Index (PMI) reports will be the highlights later on Friday.

The RBNZ decided to keep the Official Cash Rate (OCR) steady at 2.25% after concluding the February monetary policy meeting on Wednesday, as expected. RBNZ new Governor Anna Breman said during the press conference that the OCR track is based on how the central bank sees the economy evolving. Breman pushed expectations for the next potential rate hike to late 2026 or early 2027, which could drag the New Zealand Dollar (NZD) lower against the Greenback.

On the other hand, hawkish signals from the US Federal Reserve (Fed) could lift the USD in the near term. According to Fed Minutes released Wednesday, several officials suggested that if inflation remains stubbornly above the 2% target, rate hikes could be on the table. Policymakers advocated for a "two-sided" description of future policy to reflect this risk.

A slew of US economic data on Friday might offer some clues about the Fed's interest rate path. If the reports show weaker-than-expected outcomes, this could lead to expectations of interest rate cuts and undermine the Greenback.

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.