NZD/USD weakens to near 0.5600 as RBNZ seen cutting rates

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NZD/USD softens to near 0.5605 in Tuesday’s early Asian session.
RBNZ is expected to lower the Official Cash Rate by 25 basis points to 2.25% at the November meeting on Wednesday.
Fed rate cut odds stand at 80% for the December meeting.

The NZD/USD pair remains weak near 0.5605 during the early Asian trading hours on Tuesday. The expectations of the Reserve Bank of New Zealand (RBNZ) rate cut at the November meeting on Wednesday drag the New Zealand Dollar (NZD) lower against the Greenback. The US ADP Employment Change Weekly, Retail Sales, and Producer Price reports will be closely watched later on Tuesday.

Economists widely anticipate the New Zealand central bank to trim its Official Cash Rate (OCR) by 25 basis points (bps) on Wednesday, bringing it to 2.25%. The RBNZ could leave the door open for further reductions in 2026 if the economy stumbles. The dovish stance of the RBNZ could exert some selling pressure on the Kiwi in the near term. “Our base case is that November will bring the last OCR cut, but the risk remains for further easing in 2026,” said Nick Tuffley, chief economist at ASB Bank in Auckland.

Meanwhile, traders raise their bets that the US Federal Reserve (Fed) will cut the interest rate in its December meeting, which weighs on the Greenback and might cap the downside for the pair. Markets are now pricing in nearly an 80% odds of a Fed interest rate cut of a quarter-point next month, up from 30% probability last week, according to the CME FedWatch tool.

Traders will take more cues from the mixed economic signals and the delayed release of key inflation data. The US PPI inflation and Retail Sales data are due on Tuesday. Any signs of softer inflation could boost hopes for Fed rate cuts. This, in turn, could weigh on the US Dollar (USD) against the NZD.

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.