NZD/USD struggles below one-week top; around 0.5670 as USD attracts safe-haven flows

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The NZD/USD pair kicks off the new week on a subdued note and oscillates in a narrow band around the 0.5670-0.5675 region during the Asian session. Spot prices, however, remain close to a one-and-a-half-week high, around the 0.5700 neighborhood, touched on Friday amid mixed cues.

NZD/USD struggles to capitalize on Friday’s strong move up to an over one-week high.
A weaker risk tone drives safe-haven flows towards the USD and weighs on the Kiwi.
China’s economic woes and RBNZ rate cut bets also contribute to capping spot prices.

US President Donald Trump on Friday removed tariffs on roughly $1.25 billion worth of New Zealand's exports to the country, which is seen as a key factor acting as a tailwind for the NZD/USD pair. However, concerns about China's economy, along with bets for another interest rate cut by the Reserve Bank of New Zealand (RBNZ) at the November 26 meeting, hold back traders from placing aggressive bullish bets around the New Zealand Dollar (NZD).

The US Dollar (USD), on the other hand, attracts some safe-haven flows amid a generally weaker tone around the equity markets and contributes to capping the risk-sensitive NZD/USD pair. Any meaningful USD appreciation, however, seems elusive amid worries about the weakening economic momentum on the back of the longest-ever US government shutdown. This, along with dovish Federal Reserve (Fed) expectations, might keep a lid on further gains for the buck.

According to the CME Group's FedWatch Tool, traders are still pricing in around a 50% chance that the US central bank will lower borrowing costs next month. Adding to this, hopes for further stimulus from China offer some support to antipodean currencies, including the Kiwi. This, in turn, warrants some caution before confirming that the NZD/USD pair's bounce from the vicinity of the 0.5600 mark, or a multi-month low, has run its course and positioning for deeper losses.

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.