NZD/USD surges above 0.5950 due to dovish Fed policy outlook
- NZD/USD remained stronger following strong Chinese trade surplus and rising RBNZ inflation expectations.
- Traders remain cautious as a 15% tariff on New Zealand exports to the US came into effect on Thursday.
- CME FedWatch tool indicates a nearly a 93% probability of a 25 basis point Fed rate cut in September.
NZD/USD extends its three-day winning streak, trading around 0.5960 during the Asian hours on Friday. The pair continues to gain ground as the New Zealand Dollar (NZD) advanced following the encouraging Chinese Trade Surplus and the rising Reserve Bank of New Zealand’s (RBNZ) Inflation Expectations data. China’s, New Zealand’s largest trading partner, consumer and producer price data will likely be eyed on Saturday.
China's Trade Surplus increased to CNY705.10 billion in July, from the previous figure of CNY585.96 billion. Additionally, RBNZ’s Inflation Expectations declined on a 12-month and a two-year time frame for the third quarter of 2025.
However, the upside of the NZD/USD pair could be limited as the New Zealand Dollar may face challenges amid prevailing concerns over the impact of newly imposed tariffs on the domestic economy. A 15% tariff on New Zealand exports to the US took effect on Thursday, raising risks for the country’s export-driven economy.
The NZD/USD pair also draws support from easing risk sentiment, with rising expectations for Fed rate cut next month, with another possible move in December. Traders are pricing in nearly a 93% possibility of a 25 basis point (bps) cut in September, up from 48% a week ago, according to the CME FedWatch tool.
The dovish sentiment surrounding the Fed policy outlook has boosted as the US Initial Jobless Claims showed new applications for unemployment insurance in the United States (US) increased, following the July US Nonfarm Payrolls (NFP) report pointed to a cooling labor market. The jobless claims increased to 226K for the week ending August 2. This figure came in above the market consensus of 221K and was higher than the previous week’s 218K.
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.