NZD/USD gathers strength above 0.6050 amid concerns over Fed independence
- NZD/USD attracts some buyers to around 0.6065 in Friday’s early Asian session.
- Trump is considering naming the successor sooner than expected.
- The upbeat New Zealand’s economic data reinforced the RBNZ to stand pat in July.
The NZD/USD pair gains ground for the fourth consecutive day near 0.6065 during the early Asian session on Friday. The uptick of the pair is bolstered by a weakening Greenback amid renewed concerns over the US Federal Reserve’s (Fed) independence. The US May Personal Consumption Expenditures (PCE) - Price Index data will take center stage later on Friday.
US President Donald Trump could undermine Fed Chair Jerome Powell’s authority by soon naming his pick to head the central bank next year. Trump said that he has a list of potential Powell successors down to “three or four people,” without naming the finalists.
Chicago Fed President Austan Goolsbee said on Thursday that the political waves are not a factor in decision-making, nor would be the naming of a shadow chair, per CNBC. The renewed concerns about the future independence and credibility of the Fed could undermine the US Dollar (USD) and act as a tailwind for the cross in the near term.
New Zealand’s stronger-than-expected Q1 Gross Domestic Product (GDP) and better May Trade Surplus data reinforce the Reserve Bank of New Zealand’s (RBNZ) decision to push back further interest rate cuts. This, in turn, provides some support to the Kiwi. Traders expect the Reserve Bank of New Zealand (RBNZ) to deliver only one more rate cut in the current easing cycle, likely to be fully priced in by November.
Nonetheless, the renewed escalating tensions in the Middle East or economic uncertainty triggered by Trump’s tariff policy could drag the riskier assets like the NZD lower against the USD.
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.