NZD/USD extends gains to near 0.5750 amid improved risk sentiment, China stimulus hopes
- NZD/USD appreciates as sentiment improves following S&P Global Ratings' projection that New Zealand will be less affected by US tariffs.
- Bullish momentum persists in New Zealand equities, driven by signs of domestic recovery after country exited recession in Q4 2024.
- Federal Reserve Governor Adriana Kugler reaffirmed that the Fed’s interest rate policy remains restrictive and appropriately positioned.
NZD/USD continues its upward momentum for the second consecutive day, trading around 0.5740 during Asian hours on Wednesday. The pair strengthens as the New Zealand Dollar (NZD) gains traction, supported by improved trader sentiment after S&P Global Ratings projected that New Zealand and several regional economies would be less affected by US tariffs.
Additionally, optimism surrounding potential US tariff exemptions provided some relief to the export-driven NZD. However, uncertainty remains as US President Trump reportedly considers three escalating tariff levels, though some sources suggest this tiered approach is not officially under discussion.
Further bolstering NZD, bullish momentum in New Zealand equities continues following signs of domestic recovery after the country exited the recession in Q4 2024. Government data released last week showed GDP grew 0.7% in the December quarter, surpassing analysts' forecasts of 0.4% and the central bank’s 0.3% projection.
The NZD could also find support from anticipated Chinese stimulus measures aimed at boosting consumption. China’s Communist Party and State Council have proposed initiatives to "vigorously boost consumption" by increasing wages and easing financial burdens, an effort that could benefit New Zealand exports given China’s role as a key trade partner.
However, the Kiwi Dollar may struggle due to expectations of further monetary easing from the Reserve Bank of New Zealand (RBNZ). In its February meeting, the central bank signaled two 25-basis-point (bps) rate cuts in April and May, with a potential third later in the year.
Despite NZD strength, the upside for NZD/USD could be limited as the US Dollar (USD) finds support from hawkish remarks by Federal Reserve Governor Adriana Kugler. On Tuesday, Kugler emphasized that the Fed’s interest rate policy remains restrictive and well-positioned. Kugler also noted that progress toward the 2% inflation target has slowed since last summer and described the recent rise in goods inflation as "unhelpful."
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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