NZD/USD remains below 0.5700 due to ongoing uncertainty over US trade policies
- NZD/USD weakens as the US Dollar gains strength amid persistent uncertainty over US trade policies.
- The US Dollar strengthens due to risk-off sentiment and rising US Treasury yields.
- ANZ Business Outlook Index climbed to 58.4 in February, signaling increased optimism about New Zealand’s economic recovery.
NZD/USD continues its losing streak for the fifth consecutive day, trading around 0.5680 during the European session on Thursday. The pair weakens as the US Dollar (USD) strengthens amid uncertainty over US trade policies, driven by US President Donald Trump’s vague pledges to impose tariffs on Europe and continued delays on planned levies for Canada and Mexico.
The Greenback strengthens amid increased risk aversion and rising US Treasury yields. The US Dollar Index (DXY), which measures the USD against six major currencies, maintains its position above 106.50, with 2-year and 10-year US Treasury bond yields standing at 4.10% and 4.29%, respectively, at the time of writing.
Federal Reserve Bank of Atlanta President Raphael Bostic stated late Wednesday that the Fed should maintain current interest rates to continue applying downward pressure on inflation, according to Bloomberg. Bostic noted the need for more data to determine if January’s inflation was a temporary bump or the start of a trend. He emphasized that Fed policy remains restrictive and should stay that way.
On Thursday, Lu Lei, Deputy Governor of the People’s Bank of China (PBOC), suggested that the central bank take a more active role in supporting fundraising efforts, including issuing special treasury bonds, to help major state-owned banks bolster their Common Equity Tier 1 (CET1) capital. Any shifts in China’s economy could influence the NZD, given the close trade relationship between China and New Zealand.
In New Zealand, the ANZ Business Outlook Index rose to 58.4 in February 2025, up from January’s five-month low of 54.4. This marks the first increase in four months, reflecting growing optimism about the economy’s recovery, driven by lower interest rates and stronger-than-expected commodity export prices.
New Zealand Dollar FAQs
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.
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.
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.
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.
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