NZD/USD remains stronger for the second successive day, trading around 0.5990 during the European hours on Wednesday. The pair strengthened as the US Dollar (USD) weakened following US President Donald Trump’s first State of the Union (SoTU) address of his second term, delivered before a joint session of Congress.
President Trump said he had engineered a “turnaround for the ages,” pointing to lower inflation and praising his administration’s economic performance. He also highlighted measures to curb illegal immigration and stem the flow of fentanyl across the border. Trump added that he could impose higher tariffs on countries that “play games” with recent trade agreements after the Supreme Court struck down several of his sweeping global levies.
The upside of the NZD/USD pair could be limited as the US Dollar (USD) may find renewed support as expectations build that the Federal Reserve (Fed) will leave interest rates unchanged for an extended period. Boston Fed President Susan Collins said on Tuesday that it would be appropriate to keep rates within the current range for some time. Meanwhile, Richmond Fed President Thomas Barkin stated that monetary policy is “well-positioned” to address risks surrounding the economic outlook.
Last week, the Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) at 2.25%, stressing that monetary policy will remain accommodative as inflation approaches the midpoint of its target range. Governor Anna Breman said improving economic conditions should support a pickup in growth this year without reigniting strong inflationary pressures, indicating reduced urgency for further policy tightening. Traders now see little likelihood of a first rate hike before October or December.
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.
Source: https://www.fxstreet.com/news/nzd-usd-appreciates-to-near-06000-following-trumps-sotu-202602250823
