NZD edges higher as softer USD and dovish Fed boost kiwi
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Daily Currency Update
The New Zealand dollar strengthened modestly overnight, rising about 0.4% to trade near US$0.5915, supported by broad-based US dollar weakness and a relatively stable risk environment. This move followed a shift in market expectations around US Federal Reserve policy, as softer US inflation data and dovish Fed commentary diminished the likelihood of further interest rate hikes in the near term. The resulting dollar softness created room for the Kiwi to appreciate. Domestically, while New Zealand’s economic outlook remains cautious amid weak growth and persistent inflation challenges, the NZD benefited from improved risk appetite across Asia-Pacific markets. The currency traded within a relatively tight range during the session, reflecting limited domestic data catalysts and a generally quiet trading day ahead of key US releases later in the week. Overall, the NZD’s overnight gains reflected a favorable shift in global sentiment rather than any sharp change in New Zealand’s fundamentals. Looking ahead, focus turns to New Zealand’s upcoming Q1 GDP data, which, if weaker than expected, could reinforce market expectations for a Reserve Bank of New Zealand (RBNZ) rate cut as early as next month—currently priced at an 88% probability. The NZD remains under pressure following last week’s soft labour market report, which showed rising unemployment and declining participation.The New Zealand dollar is particularly sensitive to global trade developments due to the country’s heavy reliance on exports—especially agricultural products and commodities—to China and other major markets. The ongoing deadline for the US–China tariff truce remains a critical geopolitical and economic risk. Failure to extend or resolve trade tensions could trigger renewed tariffs, disrupt global supply chains, and dampen demand for commodities. Given that China is New Zealand’s largest trading partner, accounting for a substantial share of its exports, any escalation in US–China trade conflict would likely reduce Chinese demand for New Zealand goods, placing downward pressure on the NZD.
Key Movers
Overnight, the US Dollar Index (DXY) posted modest gains, rising about 0.2% to trade near the 103.50 level. The index’s strength was supported by safe-haven demand amid lingering geopolitical uncertainties and mixed economic data from other major economies. Additionally, cautious investor sentiment ahead of upcoming US inflation reports helped keep the dollar relatively firm against a basket of major currencies. However, gains were somewhat limited by easing expectations for aggressive Federal Reserve rate hikes, as recent softer inflation data tempered hawkish bets. Overall, the DXY maintained a steady yet slightly bullish tone overnight, reflecting a balanced outlook between risk aversion and hopes for a gradual economic slowdown.Meanwhile, US stocks surged to record highs, driven by investor optimism following a better-than-expected inflation report. The S&P 500 climbed 1.1% to close at 6,445.76, the Dow Jones Industrial Average rose 1.1% to 44,458.61, and the Nasdaq Composite gained 1.4% to reach 21,681.90. The Russell 2000, which tracks smaller companies, outperformed with a notable 3% jump. The rally was fueled by growing expectations that the Federal Reserve might cut interest rates in September, with futures markets pricing in a 94% probability of a rate reduction. Leading sectors included banking, technology, and airlines, with strong performances from companies such as JetBlue, Delta, Citigroup, and Intel. Positive market sentiment was further supported by easing inflation concerns, as core CPI increased 0.3% month-over-month and 3.1% year-over-year—slightly above expectations but still consistent with a cooling inflation trend.
Expected Ranges
- NZD/USD: 0.5850 - 0.6050 ▲
- NZD/EUR: 0.5000 - 0.5200 ▲
- GBP/NZD: 2.2500 - 2.2700 ▼
- NZD/AUD: 1.0850 - 1.1050 ▼
- NZD/CAD: 0.8100 - 0.8300 ▲