NZD/USD gains traction above 0.5800, US Q3 GDP in focus

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NZD/USD drifts higher to around 0.5805 in Tuesday’s early Asian session.
The RBNZ’s hawkish stance could support the Kiwi, but safe-haven flows might cap its upside.
The preliminary reading of the US Q3 GDP data will be the highlight on Tuesday.

The NZD/USD pair gains ground to near 0.5805 during the early Asian trading hours on Tuesday. The New Zealand Dollar (NZD) edges higher against the Greenback amid the Reserve Bank of New Zealand's (RBNZ) hawkish outlook on the future policy path. The preliminary reading of the US Gross Domestic Product (GDP) for the third quarter (Q3) will take center stage later on Tuesday.

The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 25 basis points (bps) to 2.25% at its November meeting. The New Zealand central bank signaled that future rate changes will depend on the economic and inflation outlook, and analysts believe the rate-cutting cycle is likely finished for now. This, in turn, could provide some support to the Kiwi against the USD.

On the other hand, the risk-off sentiment amid uncertainty and rising geopolitical tensions could boost the safe-haven currency, such as the US Dollar (USD), and create a headwind for the pair. US President Donald Trump said on Monday that the US would keep and maybe sell the oil it had seized off the coast of Venezuela in recent weeks. Trump added that the US would also keep the seized ships.

Traders await the preliminary reading of the US GDP report for Q3 later in the day. The US economy is estimated to have expanded at an annual rate of 3.2% in Q3. It would be a slowdown from the 3.8% growth in Q2. In case of a stronger-than-expected outcome, this could underpin the USD against the NZD in the near term.

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.