NZD climbs as policy divergence with Fed supports kiwi strength
Daily Currency Update
The New Zealand dollar is holding firm this morning, with NZD/USD trading near 0.5807. This level keeps the pair comfortably above the important 0.5800 threshold, which it surpassed yesterday to reach its strongest level in more than two months. The Kiwi’s recent performance highlights a clear upward bias, driven by a combination of global market dynamics and shifting central-bank expectations.
One of the biggest tailwinds for the New Zealand dollar right now is the broad weakening of the US Dollar (USD). The greenback has been losing momentum since the Federal Reserve adopted a noticeably more dovish tone on Wednesday. Fed officials signaled that they are likely done tightening policy, and markets have quickly moved to price in the possibility of rate cuts next year. With US yields softening and investors reassessing the outlook for US monetary policy, demand for the USD has cooled, giving risk-sensitive currencies like the Kiwi a welcome lift.
At the same time, the global backdrop has turned more positive for risk assets. Equity markets have strengthened, volatility has eased, and investor appetite for higher-yielding currencies has improved. This friendlier risk environment tends to benefit the New Zealand dollar, which is often viewed as a barometer for global growth sentiment.
Domestically, the Kiwi is finding additional support from the Reserve Bank of New Zealand (RBNZ). Unlike many other central banks that are leaning toward more accommodative policy, the RBNZ has taken a firmly hawkish stance in recent weeks. Although the central bank cut its policy rate in November to a three-year low, it signaled that the easing cycle was likely nearing its end. Policymakers expressed caution about inflationary pressures and made it clear that they were not in a hurry to continue cutting rates.
This message stands in stark contrast to the evolving outlook for the Federal Reserve, where expectations of rate cuts have grown stronger. This policy divergence—with the RBNZ appearing close to a pause while the Fed turns more dovish—has been a key driver behind NZD/USD’s upward momentum.
Looking ahead, traders will be watching for fresh economic data from both countries to see whether this supportive backdrop for the Kiwi will continue. For now, though, the New Zealand dollar is benefiting from a sweet spot of domestic resilience and global dollar softness, keeping the pair well-positioned above the latest breakout level.
Key Movers
Fresh economic data out of the United States is reinforcing the picture of a cooling labour market, adding to growing expectations that the Federal Reserve will remain on a more accommodative policy path. Newly released figures show that Initial Jobless Claims rose to 236,000 for the week ending December 6, noticeably higher than the 220,000 economists had anticipated and a sharp uptick from the revised 192,000 reported the previous week. This marks one of the more significant weekly increases in recent months and suggests that employers may be slowing hiring activity as economic momentum softens.
The broader trend also points to a gradual loss of steam. The four-week moving average, which helps smooth out weekly volatility, continued to edge higher. Meanwhile, Continuing Claims—a measure of Americans who remain unemployed and continue to receive benefits—held at an elevated 1.838 million. The persistence of higher continuing claims indicates that displaced workers are finding it harder to secure new employment, a sign that the job market may be easing more materially than earlier believed.
These developments fit neatly with the Federal Reserve’s recent assessment that the US labour market is no longer as tight as it was earlier in the year. A softer employment backdrop was one of the key reasons behind the Fed’s decision to reduce interest rates, and the latest data gives policymakers little reason to reconsider that shift. Investors are increasingly confident that more easing could follow if the trend of weakening labour conditions continues.
The shifting economic landscape has also had a clear impact on the US Dollar. The US Dollar Index (DXY) is sliding toward 98.25, marking its lowest level since mid-October. The currency has been pressured by the combination of softer macroeconomic data, declining yields, and the perception that the Fed will remain dovish for longer. Market speculation surrounding the potential successor to Federal Reserve Chair Jerome Powell, whose term expires in May, is adding another layer of uncertainty. Reports suggest that Kevin Hassett, widely viewed as more dovish, could be a leading candidate. If appointed, expectations for a more accommodative policy stance may deepen, exerting additional downward pressure on the USD.
With investors weighing economic cooling and political uncertainty, the dollar remains vulnerable in the near term. Markets will be watching closely to see whether upcoming data confirms the trend of a softer US economy—or hints at stabilization ahead.
Expected Ranges
- NZD/USD: 0.5700 - 0.5900 ▲
- NZD/EUR: 0.4850 - 0.5050 ▲
- GBP/NZD: 2.2950 - 2.3150 ▼
- NZD/AUD: 1.1350 - 1.1550 ▲
- NZD/CAD: 0.7900 - 0.8100 ▲