New Zealand Dollar weakens below 0.5650 as Fed hike bets grow
- NZD/USD weakens to around 0.5635 in Friday’s Asian session.
- Markets continue to see a rate hike in September as very much in play.
- ASB Bank dropped its call for a July hike. It now anticipates a pause at the upcoming July meeting.
The NZD/USD pair trades in negative territory for the eighth consecutive day near 0.5635 during the Asian trading hours on Friday. The New Zealand Dollar (NZD) has faced some selling pressure near the lowest level since late November 2025 on tensions in the Middle East and Federal Reserve (Fed) rate hike expectations.
The US Personal Consumption Expenditures (PCE) Price Index climbed 4.1% YoY in May, compared to 3.3% in the previous reading, according to the US Bureau of Economic Analysis (BEA) on Thursday. The annual rate accelerated well above the Fed’s 2% target.
The core PCE, the Fed’s preferred inflation gauge, rose 3.4% YoY in May, versus 3.3% prior, in line with expectations. This figure registered the highest since October 2023. A separate report showed the US Gross Domestic Product (GDP) grew at an annualized 2.1% pace in the first quarter (Q1), faster than the market consensus and the previous reading of 1.6%.
Markets expect three Fed rate hikes this year and are pricing in about 63.4% probability of a September increase, according to the CME FedWatch Tool.
The Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) at 2.25% at its May meeting. Analysts believe the cooling energy market has given the New Zealand central bank significant breathing room to assess data before acting on monetary policy.
ASB Bank dropped its call for a July hike and now expects the RBNZ to keep the OCR on hold at the upcoming July meeting, followed by steady 25-basis-point increases starting in September, with the OCR peaking at 3.25% by early 2027.
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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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