NZD/USD sticks to gains above 0.5800; lacks bullish conviction amid USD uptick

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The NZD/USD pair attracts fresh buyers following the previous day's good two-way price swings and holds above the 0.5800 mark through the Asian session on Friday. Spot prices, however, remain below a one-week high and the 200-day Simple Moving Average (SMA) touched on Thursday.

NZD/USD regains positive traction following Thursday’s pullback from an over one-week top.
A positive risk tone benefits the Kiwi, though a modest USD uptick keeps a lid on spot prices.
The mixed fundamental backdrop warrants some caution before positioning for further gains.

The US Dollar (USD) is looking to build on the previous day's goodish rebound from a one-week low, and is turning out to be a key factor acting as a headwind for the NZD/USD pair. Furthermore, rising bets for more interest rate cuts by the Reserve Bank of New Zealand (RBNZ) might hold back traders from placing aggressive bullish bets around the New Zealand Dollar (NZD). This, in turn, warrants some caution before positioning for an extension of the pair's recovery move from the vicinity of mid-0.5700s, or its lowest level since April touched last week.

Any meaningful USD appreciation, meanwhile, seems elusive in the wake of the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs two more times by the end of this year. Moreover, worries that a prolonged US government shutdown could have an adverse effect on economic performance might cap the USD and offer some support to the NZD/USD pair. US Treasury Secretary Scott Bessent warned that the shutdown could hurt the economy more than those in the past, with potential hits to the GDP, growth, and the labor market.

Adding to this, the prevalent risk-on environment – as depicted by the upbeat mood across the global equity markets – could keep a lid on the safe-haven buck and benefit the risk-sensitive Kiwi. Nevertheless, the NZD/USD pair seems poised to register gains for the first time in three weeks, though the mixed fundamental backdrop makes it prudent to wait for any further appreciating move.

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.