NZD/USD rises above 0.6000 as US Dollar remains subdued due to dampened safe-haven demand
- NZD/USD appreciated as New Zealand’s trade surplus came in at NZD1,235 million, better than expected for May.
- The US Dollar struggled due to improved risk appetite following easing tensions in the Middle East.
- Fed Chair Powell advocated for delaying rate cuts, likely until sometime in the fourth quarter.
NZD/USD extends its winning streak for the third successive session, trading around 0.6030 during the early European hours on Wednesday. The pair remains stronger following the trade balance data, released by Statistics New Zealand.
New Zealand’s trade surplus came in at NZD1,235 million in May month-over-month in May, surpassing the market expectations of NZD1,060 million but lower than the previous NZD1,285 million (revised from NZD1,426 million). Exports rose to NZD7.7 billion, while Imports rose to NZD6.4 billion.
The NZD/USD pair receives support as the US Dollar (USD) faces challenges amid improving risk appetite, driven by easing tensions in the Middle East. US President Donald Trump announced that a ceasefire between Iran and Israel had taken effect, raising hopes for an end to the 12-day conflict.
However, caution lingered amid uncertainty over the ceasefire’s durability. A US intelligence report indicated that US strikes on Iranian nuclear sites have set back Tehran's program by only a matter of months, per Reuters. Additionally, Iranian Foreign Minister Abbas Araghchi said that the country's nuclear program continues, per the local news agency Al Arabiya.
Fed Chair Powell stated during his testimony before the congressional budget committee on Tuesday that rate cuts could be delayed until sometime in the fourth quarter. Powell added, “When the time is right, expect rate cuts to continue.” He also said that data suggests that at least some of the tariffs will hit consumers and will start to see more tariff inflation starting in June.
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.