NZD/USD moves above 0.5650 due to reviving hopes of Fed's further rate cuts


  • NZD/USD receives upward support from the increased likelihood that the Fed will continue its policy easing next year.
  • The CME FedWatch tool indicates a nearly 90% probability that the Federal Reserve will keep interest rates unchanged in January.
  • The NZD may depreciate as the RBNZ is widely expected to deliver a 50 basis point rate cut in February.

NZD/USD extends its gains for the second consecutive day, trading around 0.5660 during the Asian session on Monday. The NZD/USD pair gains ground as the US Dollar (USD) remains subdued following the softer Personal Consumption Expenditures Price Index (PCE) data from the United States (US).

The inflation report showed that core PCE inflation year-over-year, the Fed’s preferred inflation measure, rose steadily by 2.8% in November, slower than estimates of 2.9%. The monthly core inflation grew moderately by 0.1%, against estimates of 0.2% and the prior release of 0.3%.

However, moderate growth in US inflation may increase the market expectations that the Federal Reserve (Fed) will adopt a slower pace of additional cuts in 2025. According to the CME FedWatch tool, markets now anticipate a more than 90% probability that the Federal Reserve (Fed) will keep interest rates unchanged in January, maintaining the current range of 4.25%–4.50%.

The upside potential for the New Zealand Dollar (NZD) could be limited, as weaker-than-expected GDP data for Q3 has pushed New Zealand into its deepest recession since the initial COVID-19 slump in 2020. This has increased expectations for more aggressive monetary policy easing by the Reserve Bank of New Zealand (RBNZ). Markets have fully priced in a substantial 50 basis point rate cut at the RBNZ’s February meeting.

New Zealand's GDP contracted by 1.0% quarter-over-quarter in Q3, slightly improving from the revised 1.1% contraction in Q2 but worse than the anticipated 0.4% decline. On an annual basis, GDP shrank by 1.5% in Q3, a sharper decline compared to the previous 0.5% contraction and well below the expected 0.4% drop.

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD trades sideways below 1.0450 amid quiet markets

EUR/USD trades sideways below 1.0450 amid quiet markets

EUR/USD defends gains below 1.0450 in European trading on Monday. Thin trading heading into the Xmas holiday and a modest US Dollar rebound leaves the pair in a familair range. Meanwhile, ECB President Lagarde's comments fail to impress the Euro. 

EUR/USD News
GBP/USD stays defensive below 1.2600 after UK Q3 GDP revision

GBP/USD stays defensive below 1.2600 after UK Q3 GDP revision

GBP/USD trades on the defensive below 1.2600 in the European session on Monday. The pair holds lower ground following the downward revision to the third-quarter UK GDP data, which weighs negatively on the Pound Sterling amid a broad US Dollar uptick. 

GBP/USD News
Gold price holds comfortably above $2,600 mark; lacks bullish conviction

Gold price holds comfortably above $2,600 mark; lacks bullish conviction

Gold price oscillates in a range at the start of a new week amid mixed fundamental cues. Geopolitical risks continue to underpin the XAU/USD amid subdued US Dollar price action. The Fed’s hawkish stance backs elevated US bond yields and caps the pair’s gains.

Gold News
The US Dollar ends the year on a strong note

The US Dollar ends the year on a strong note

The US Dollar ends the year on a strong note, hitting two-year highs at 108.45. The Fed expects a 50-point rate cut for the full year 2025 versus 4 cuts one quarter earlier, citing higher inflation forecasts and a stubbornly strong labour market. 

Read more
Bank of England stays on hold, but a dovish front is building

Bank of England stays on hold, but a dovish front is building

Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures