New Zealand Dollar recovers from six-week low vs USD; upside seems capped ahead of US CPI
- NZD/USD attracts some buyers on Friday as USD stalls the US PPI-inspired rise.
- Rising Fed rate hike bets and geopolitical risks should limit deeper USD losses.
- Traders look forward to the crucial US CPI report for some meaningful impetus.
The NZD/USD pair gains some positive traction during the Asian session on Friday, reversing a part of the previous day's heavy losses to sub-0.5800 levels, or the lowest since late July. The upside potential, however, seems limited as traders might opt to wait for US consumer inflation figures before placing fresh directional bets.
The crucial US Consumer Price Index (CPI) will be watched for more cues about the US Federal Reserve's (Fed) policy path amid rising rate hike bets, bolstered by the upbeat US Nonfarm Payrolls (NFP) report and still sticky inflation. In fact, data released on Thursday showed that the US Producer Price Index (PPI) accelerated to a 5.4% YoY rate in August, beating consensus estimates. This, in turn, prompted traders to add to bets for a Fed rate hike next week, which favors US Dollar (USD) bulls and should cap gains for the NZD/USD pair.
Apart from this, escalating US-Iran tensions remain supportive of elevated crude oil prices, which shot to the highest level since May 21 on Thursday and add to concerns about inflation risks stemming from the Middle East conflict. In the latest development, the US Treasury plans to sanction a large, undisclosed bank on Monday as part of its ongoing economic pressure campaign against Iran. Moreover, Houthi forces have taken control of Mocha, a key Red Sea port, tightening their grip near the Bab el-Mandeb shipping route.
This raises the risk of a broader regional conflict and keeps the geopolitical risk premium in play, which should further benefit the safe-haven Greenback. Adding to this, a dovish tilt in the Reserve Bank of New Zealand’s (RBNZ) policy projections might contribute to capping the NZD/USD pair, warranting some caution for bulls and positioning for any further gains. Nevertheless, spot prices remain on track to register losses for the third straight week, and the fundamental backdrop suggests that the path of least resistance is to the downside.
NZD/USD daily chart
Technical Analysis
The NZD/USD pair trades above the 50.0% retracement at 0.5806 but keeps a capped tone below the 200-day Exponential Moving Average (EMA) at 0.5851. The proximity of the 38.2% retracement at 0.5848 to the 200-day EMA reinforces a nearby resistance band that needs to be cleared to ease immediate downside pressure.
On the downside, the 50.0% retracement at 0.5806 is the first support, ahead of the 61.8% level at 0.5763 and the deeper Fibonacci floors at 0.5702 and 0.5625, where buyers would be expected to show more interest if weakness extends.
(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.
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