NZD/USD advances to fresh YTD peak, around 0.5930 area amid broadly weaker USD
- NZD/USD attracts strong follow-through buying for the fifth straight day amid a bearish USD.
- US recession fears, Fed rate cut bets, and a positive risk tone continue to undermine the buck.
- Technical buying above the 200-day SMA contributes to the momentum despite trade tensions.
The NZD/USD pair builds on the previous day's breakout momentum beyond the 200-day Simple Moving Average (SMA) and gains strong follow-through positive traction for the fifth successive day on Tuesday. The momentum lifts spot prices to the 0.5925-0.5930 region, or a fresh year-to-date high during the Asian session, and is sponsored by the underlying bearish sentiment surrounding the US Dollar (USD).
The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near a three-year low amid worries about the economic fallout from the rapid escalation of the US-China trade war. In fact, China increased its tariffs on US imports to 125% on Friday in retaliation to US President Donald Trump's decision to raise duties on Chinese goods to an unprecedented 145%. Given that the US still imports several hard-to-replace materials from China, the development fuels recession fears and keeps the USD bulls on the defensive.
Meanwhile, expectations that a tariffs-driven US economic slowdown might force the Federal Reserve (Fed) to cut interest rates more aggressively in 2025 turn out to be another factor weighing on the buck. In fact, the markets are currently pricing in the possibility that the US central bank will lower borrowing costs by 90 basis points. Moreover, Trump's temporary tariff reprieve remains supportive of the positive risk tone, which is further seen undermining the safe-haven Greenback and driving flows toward the perceived riskier Kiwi.
Apart from this, the strong move-up could also be attributed to some technical buying above the very important 200-day SMA. Traders now look forward to the US economic docket, featuring the release of the Empire State Manufacturing Index, which, along with trade developments might influence the USD and provide some impetus to the NZD/USD pair. The focus, however, remains glued to Fed Chair Jerome Powell's speech on Wednesday, which will be scrutinized for cues about the future rate-cut path and drive the USD demand.
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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