During the Asian trading hours on Friday, the NZD/USD pair is trading in negative territory near the 0.5635 level for the eighth day in a row. The New Zealand dollar (NZD) has come under selling pressure near its lowest level since tardy November 2025 amid tensions in the Middle East and expectations of an interest rate hike by the Federal Reserve (Fed).
According to the US Bureau of Economic Analysis (BEA) on Thursday, the US personal consumption expenditure (PCE) price index rose 4.1% y/y in May compared to 3.3% in the previous reading. The annual interest rate has risen well above the Fed’s 2% target.
Core PCE, the Fed’s preferred measure of inflation, rose 3.4% y/y in May from 3.3% earlier, in line with expectations. This figure was the highest since October 2023. A separate report showed that US gross domestic product (GDP) grew at an annualized rate of 2.1% in the first quarter (Q1), which was faster than the market consensus and the previous reading of 1.6%.
According to CME FedWatch Tool, markets expect three Fed interest rate increases this year and estimate the probability of a September escalate at 63.4%.
At its May meeting, the Reserve Bank of New Zealand (RBNZ) maintained its official interest rate (OCR) at 2.25%. Analysts believe the cooling market has given New Zealand’s central bank significant leeway to assess data before taking monetary policy action.
ASB Bank has withdrawn its call for a July escalate and now expects the RBNZ to keep the OCR rate unchanged at its upcoming July meeting, followed by constant increases of 25 basis points from September, with the OCR peaking at 3.25% in early 2027.
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 escalate 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 cold 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 powerful 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 feeble, 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 safe and sound havens.
