NZD/USD moves below 0.5650 as traders expect RBNZ to deliver another bumper rate cut
- NZD/USD weakens as the RBNZ is widely expected to implement another 50 basis point rate cut in February.
- New Zealand’s Trade Balance recorded a surplus of NZ$219 million in December, driven by a robust 17% surge in exports.
- US Gross Domestic Product Annualized (Q4) could report a 2.6% growth, down from the previous 3.1%.
The NZD/USD pair extends its decline for the fourth consecutive day, trading near 0.5640 during European hours on Thursday. The New Zealand Dollar (NZD) continues to weaken amid dovish expectations regarding the Reserve Bank of New Zealand's (RBNZ) monetary policy. The RBNZ is expected to implement another 50 basis point (bps) rate cut on February 19, following two previous reductions in the current cycle.
On the economic front, New Zealand reported a trade surplus of NZ$219 million in December, driven by a robust 17% surge in exports, which outpaced a 6.5% increase in imports. However, ANZ Business Confidence fell to a five-month low of 54.4 in January, down from 62.3 in December. Similarly, the Business Outlook Index declined for the third consecutive month, reaching 54.4 in January 2025—its lowest level since August—amid signs of a slowing economy.
Traders await the release of the US fourth-quarter Gross Domestic Product (GDP) growth data, scheduled for Thursday. The market consensus expects a slowdown in annualized GDP growth, with a forecast of 2.6%, down from the previous 3.1%. Inflationary concerns persist, with the Q4 GDP Price Index expected to rise to 2.5%, up from 1.9%.
Further downside risks for NZD/USD appear as the USD could strengthen amid the Federal Reserve's (Fed) cautious approach to monetary policy. The Fed maintained its overnight borrowing rate at 4.25%-4.50% during its January meeting on Wednesday, as widely anticipated. This decision follows three consecutive rate cuts since September 2024, totaling a one-percentage-point reduction.
The Federal Reserve reinforced its hawkish stance by removing language that indicated confidence in inflation reaching its 2% target. Fed Chair Jerome Powell stressed in the press conference that the central bank would only consider policy changes if there was "real progress on inflation or signs of weakness in the labor market."
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.