NZD/USD holds losses near 0.5850 due to further RBNZ rate cut bets

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NZD/USD has trimmed its losses from the previous session, trading around 0.5850 during the early European hours on Wednesday.

NZD/USD struggles as traders expect the RBNZ to deliver more rate cuts.
Trump could impose a 200% tariff on Chinese goods if Beijing refuses to supply magnets to the US.
Fed Governor Lisa Cook’s exit may boost the odds of earlier rate cuts.

NZD/USD has trimmed its losses from the previous session, trading around 0.5850 during the early European hours on Wednesday. The pair depreciates as the New Zealand Dollar (NZD) struggles amid prevailing sentiment of further policy easing by the Reserve Bank of New Zealand (RBNZ), following last week’s rate cut.

RBNZ Governor Christian Hawkesby noted that the policy outlook is guided by data, but emphasized that if businesses and consumers stay cautious and require additional support, it could warrant further measures.

US President Donald Trump warned that impose a 200% tariff on Chinese goods if Beijing refuses to supply magnets to the United States (US), putting the fragile truce between the world’s two largest economies at risk. It is worth noting that any change in the Chinese economy could influence NZD as China and New Zealand are close trading partners.

The downside of the AUD/NZD pair could be limited as the US Dollar may struggle from rising Fed concerns, along with a dovish tone surrounding the central bank’s policy outlook. Trump announced early Tuesday that he was removing Fed Governor Lisa Cook from her position on the Fed's board of directors. He also said that he was ready for a legal fight with Cook over falsified mortgage documents.

The dismissal of Fed Governor Cook could increase the likelihood of heavy interest rate cuts, given Trump’s ongoing pressure on the central bank to reduce borrowing costs. Traders are now pricing in more than 87% odds for a cut of at least a quarter-point at the Fed’s September meeting, up from 84% previous day, according to the CME FedWatch tool.

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.