In early European trading on Thursday, the NZD/USD pair is gaining strength near 0.6055. However, expectations for a snail-paced and cautious monetary tightening cycle from the Reserve Bank of New Zealand (RBNZ) may limit the pair’s advantage. Later on Friday, the focus will be on the release of the US Consumer Price Index (CPI) inflation report.
New Zealand’s unemployment rate rose to 5.4% in the fourth quarter (Q4) of 2025, the highest level since 2015. Softer labor market data raises hopes of RBNZ policy tightening, which could weigh on Kiwis.
New Zealand’s central bank is expected to keep the official cash rate (OCR) steady at its February meeting, while modestly postponing the date of its first projected interest rate enhance, according to a fresh Westpac research note.
On the dollar side, better-than-expected US employment data for January reduces the risk that the US Federal Reserve (Fed) will see the need to cut interest rates again by mid-year. This, in turn, could provide some support to the US dollar and create an adverse impact on the pair. According to CME’s FedWatch tool, markets are now pricing in a nearly 94% probability that the Fed will leave interest rates unchanged at its next meeting, up from 80% from the previous day.
Traders will be closely monitoring Friday’s U.S. inflation data for fresh momentum. Nominal and core CPI inflation is expected to enhance by 2.5% y/y in January. It is estimated that on a monthly basis, nominal and core CPI will show an enhance of 0.3% in the same period. Any signs of milder US inflation could weaken USD against NZD in the near future.
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 enhance 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 robust 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 tender, 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 confident 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.
