New Zealand Dollar gains on USD weakness, domestic headwinds cap upside
- NZD/USD rose as the US Dollar fell following a Democratic midterm win and falling oil prices.
- Resilient US jobs and ISM data keep Federal Reserve December rate hike odds near 82%.
- Diminished RBNZ rate hike odds and upcoming New Zealand elections limit further NZD gains.
NZD/USD appreciates for the second consecutive day, trading around 0.5650 during Asian hours on Thursday. The pair gained ground as the US Dollar (USD) faced heavy selling pressure following a Democratic sweep in the US midterm elections, which handed Democrats control of both houses of Congress and raised concerns over potential political gridlock in Washington. Additionally, market expectations of a swift end to the Middle East conflict triggered a sharp decline in oil prices, putting further downward pressure on the Greenback.
However, the US Dollar's losses could be capped as resilient domestic economic data reinforced expectations for a Federal Reserve rate hike. The ADP employment report showed private-sector hiring increased by 86,000 in October, beating expectations of 69,000, despite September’s figure being revised down to 86,000 from 90,000. Meanwhile, the ISM Services PMI slipped slightly to 54.5 from 54.9, just below the 54.8 forecast, but remained firmly in expansion territory.
These solid economic metrics keep expectations hawkish, with the CME FedWatch Tool indicating that markets are pricing in nearly an 82% chance of another rate hike in December. Investors are now awaiting key upcoming economic indicators, including weekly US Initial Jobless Claims on Thursday and the Nonfarm Payrolls (NFP) report on Friday.
However, upside potential for the NZD/USD pair remains limited as the New Zealand Dollar faces domestic headwinds. Recent labor market data prompted investors to pare back bets on a Reserve Bank of New Zealand (RBNZ) rate hike in December, with market-implied odds falling below 50%, down from roughly 75% earlier in the week. Market focus is now shifting toward New Zealand's general election on Saturday, where opinion polls signal a tight contest between the governing centre-right National-led coalition and opposition parties led by Labour.
Technical Analysis:
In the daily chart, NZD/USD trades at 0.5650. The pair retains a bearish near-term bias as spot holds below the 50-day Exponential Moving Average (EMA), keeping the broader downtrend intact. However, price is trading just above the nine-day EMA, hinting at a modest attempt to stabilize after recent losses. The 14-day Relative Strength Index (RSI) has recovered toward a neutral 47.8 area, suggesting selling pressure is no longer extreme, but upside traction remains limited for now.
On the topside, initial resistance is defined by the 50-day EMA at 0.5693, and a daily close above this barrier would be needed to alleviate the prevailing downside pressure. On the downside, immediate support is provided by the nine-day EMA at 0.5638; a break below this level would expose the pair to renewed selling, reinforcing the broader bearish structure while momentum stays only mildly negative.
(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.