Kiwi dollar rises on US tariff relief, but soft data keeps rate-cut bets alive
Written by
Daily Currency Update
NZD/USD is extending its upward momentum for a second straight session, trading near US$0.5650 at the time of writing. The New Zealand dollar (NZD) has found support after a notable boost from the United States on Friday, President Donald Trump lifted tariffs on a range of New Zealand exports valued at around NZ$2.21 billion (US$1.25 billion) annually. The announcement was welcomed in Wellington, with New Zealand officials expressing hope that this move will pave the way for the removal of remaining additional tariffs still affecting some key export categories. For now, the partial rollback offers a welcome tailwind for the Kiwi, particularly for exporters who have been navigating the heavier cost burden in recent years.Despite this positive development, the NZD’s broader outlook remains clouded by soft domestic data and growing expectations that the Reserve Bank of New Zealand (RBNZ) could cut interest rates later this month. Markets are increasingly pricing in a 25-basis-point cut, driven by signs that economic momentum remains subdued. Fresh economic indicators released last week helped reinforce that view.
New Zealand’s Business NZ Performance of Services Index (PSI) inched up to 48.7 in October, rising modestly from 48.3 in September. While the improvement is a step in the right direction, the index has now remained in contraction territory for 20 consecutive months, a clear indication that service-sector activity is still struggling to gain traction. Even more telling, the PSI remains well below its long-term average of 52.8, a level typically associated with steady, broad-based economic expansion.
Meanwhile, inflation-related data also pointed to ongoing weakness. The Food Price Index fell 0.3% month-over-month in October, following a 0.4% decline in September. Softer food prices may help ease pressure on household budgets, but they also contribute to a subdued inflation backdrop, giving the RBNZ more reason to consider lowering rates to support demand. Taken together, these data points highlight a domestic economy that is still searching for momentum, even as external developments offer brief flashes of optimism.
As a result, while the NZD has enjoyed a short-term lift from the tariff news, investors remain cautious about its medium-term direction. The upcoming RBNZ meeting is shaping up to be pivotal, with traders seeking clarity on whether policymakers will indeed move ahead with a cut or prefer to wait for more data. For now, NZD/USD may continue to see modest gains, but lingering economic softness suggests the Kiwi could face headwinds if expectations for easier monetary policy continue to build.
Key Movers
In the United States, financial markets are gearing up for a busy week as traders brace for a wave of delayed economic data following the end of the government shutdown. One of the most closely watched releases is the September Non-farm Payrolls (NFP) report, is now scheduled for November 20, but uncertainty remains around several other indicators. Because many federal agencies were unable to collect or process information during October, some data for that month may not be published at all. Kevin Hassett, Director of the US National Economic Council, even cautioned that certain October figures may “never be produced,” leaving analysts with limited visibility into the most recent economic trends.At the same time, the US dollar has drawn support from a series of comments by Federal Reserve officials, which have collectively pushed back against expectations for near-term policy easing. Kansas City Fed President Jeffrey Schmid remarked that monetary policy needs to “lean against demand growth,” describing the current stance as “modestly restrictive.” His tone suggested little urgency to lower rates while consumption and hiring remain relatively firm. Similarly, St. Louis Fed President Alberto Musalem noted that interest rates are edging closer to neutral levels, but he also emphasised that cutting them prematurely could risk reigniting inflation pressures. Minneapolis Fed President Neel Kashkari added another layer of caution, pointing out signs of strain in parts of the labor market while noting that inflation remains too high at around 3%, still above the Fed’s 2% target. Together, these remarks have encouraged investors to dial back expectations for a December rate cut. Market pricing reflects the shift in sentiment. According to the CME FedWatch Tool, the probability of a 25-basis-point cut in December has dropped sharply to 46%, down from 67% just one week earlier. That adjustment highlights how sensitive rate expectations remain to both economic data and Fed communication.
Adding to the USD's support, the latest reading of the New York Empire State Manufacturing Index surprised to the upside. The index came in at 18.7 for November, significantly higher than the consensus forecast of 6 and well above the previous reading of 10.7. This stronger-than-expected result suggests that pockets of the US economy, particularly in manufacturing continue to show resilience, even amid mixed signals elsewhere.
As traders navigate the days ahead, the combination of delayed data, cautious but firm Fed messaging and signs of economic strength is likely to keep the USD on steady footing. With uncertainty still hanging over the October data gap, market participants will be watching upcoming releases and Fed commentary even more closely than usual.
Expected Ranges
- NZD/USD: 0.5550 - 0.5750 ▼
- NZD/EUR: 0.4800 - 0.5000 ▼
- GBP/NZD: 2.3200 - 2.3400 ▲
- NZD/AUD: 1.1400 - 1.1600 ▲
- NZD/CAD: 0.7850 - 0.8050 ▼