NZD/USD remains stronger for the second day in a row, trading around 0.5990 during European hours on Wednesday. The pair strengthened as the US dollar (USD) weakened after US President Donald Trump’s first State of the Union (SoTU) address of his second term, delivered before a joint session of Congress.
President Trump said he engineered a “coup for the ages,” pointing to lower inflation and praising his administration’s economic performance. He also highlighted measures to curb illegal immigration and the flow of fentanyl across the border. Trump added that he may impose higher tariffs on countries that “game” recent trade deals after the Supreme Court struck down several of his sweeping global tariffs.
The upside for the NZD/USD pair may be confined as the US dollar (USD) may find renewed support as expectations grow that the Federal Reserve (Fed) will leave interest rates unchanged for an extended period. Boston Fed President Susan Collins said Tuesday that it would be advisable to keep interest rates in the current range for some time. Meanwhile, Richmond Fed President Thomas Barkin said monetary policy was “well-positioned” to address risks to the economic outlook.
Last week, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) at 2.25%, emphasizing that monetary policy will remain accommodative as inflation moves towards the middle of its target range. Governor Anna Breman said improving economic conditions should support accelerating economic growth this year without reigniting forceful inflationary pressures, which would indicate less urgency to tighten policy further. Traders currently do not see much likelihood of the first interest rate raise before October or December.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the condition of the New Zealand economy and the policy of the country’s central bank. Still, there are some unique features that can also cause the NZD to move. The performance of the Chinese economy tends to move Kiwis because China is New Zealand’s largest trading partner. Bad news for the Chinese economy is likely to mean fewer New Zealand exports to the country, which hits the economy and therefore the currency. Another factor influencing NZD is dairy prices, as the dairy industry is New Zealand’s main export. High dairy product prices raise export earnings, positively impacting the economy and therefore NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of 1% to 3% over the medium term, with particular emphasis on keeping it close to the average level of 2%. For this purpose, the bank sets the appropriate level of interest rates. When inflation gets too high, the RBNZ will raise interest rates to nippy the economy, but this move will also push up bond yields, making it more attractive for investors to invest in the country and therefore strengthening New Zealand’s currency. On the contrary, lower interest rates tend to weaken NZD. The so-called interest rate differential, which is how New Zealand rates are or are expected to be compared to those set by the US Federal Reserve, could also play a key role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assessing the state of the economy and may impact the valuation of the New Zealand dollar (NZD). NZD is well served by a forceful economy, underpinned by high economic growth, low unemployment and high confidence. High economic growth attracts foreign investment and may prompt the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by increased inflation. Conversely, if economic data is frail, NZD will likely lose value.
The New Zealand dollar (NZD) tends to strengthen during periods of increased risk or when investors perceive that broader market risk is low and are hopeful about growth. This tends to lead to a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. On the other hand, NZD tends to weaken during periods of market turmoil or economic uncertainty as investors tend to sell higher risk assets and flee to more stable sheltered havens.
