New Zealand Dollar gathers strength above 0.5800, all eyes on US CPI inflation data
- NZD/USD gains momentum to near 0.5835 in Friday’s early European session.
- Traders raised the odds for a quarter-percentage-point increase to more than 70% following hotter PPI data.
- Dovish signals from the RBNZ might cap the upside for the New Zealand Dollar.
The NZD/USD pair rises to around 0.5835, snapping the four-day losing streak during the early European trading hours on Friday. However, the potential upside for the pair might be limited as markets turn cautious ahead of the key US Consumer Price Index (CPI) inflation data later on Friday.
Markets pushed the probability for a US rate increase to 70% following a report showing increasing Producer Price Index (PPI) in August, according to the CME FedWatch tool.
Traders will take more cues from the US CPI data later in the day. This report will be the last piece of the inflation puzzle the Federal Reserve (Fed) will get before making its decision on interest rates next week. The headline CPI is expected to show a rise of 3.4% in August, while the core CPI is projected to show an increase of 2.4% during the same period.
The Reserve Bank of New Zealand (RBNZ) delivered a dovish rate hike, raising the Official Cash Rate (OCR) by 25 basis points (bps) to 2.75%. The New Zealand central bank said that the current rate remains accommodative, and the bank is focused on a "gradual removal of monetary stimulus".
Economists widely expect at least one more rate hike before the end of the year, likely in December. The RBNZ’s cautious tone and forward guidance have dampened market expectations for an aggressive tightening cycle, which could weigh on the Kiwi.
Technical Analysis: NZD/USD remains capped below the 100-day SMA
In the daily chart, NZD/USD holds a bearish near-term bias as spot remains capped beneath the 100-day simple moving average (SMA) and the Bollinger mid-line. The Relative Strength Index (14) around 43 leans toward weak downside momentum rather than oversold conditions, suggesting sellers still have the upper hand unless price can reclaim the nearby moving average resistance.
On the downside, initial support is aligned with the lower Bollinger band at 0.5800; a clear break below this zone would open the door to a deeper slide toward prior lows beyond the current dataset. On the topside, immediate resistance is located at the 100-day SMA at 0.5842, followed by the Bollinger mid-line near 0.5900, with the upper band around 0.6000 acting as a more distant barrier that would need to give way to neutralize the prevailing bearish tone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
