NZD/USD rises as US Dollar Softens

The NZD/USD pair bounced back, recovering its intraday losses, as the Kiwi pair rose to near 0.5680 in European trading hours on Wednesday (5 March). The US Dollar (USD) extended its downside as investors assessed the US economic outlook amid escalating Trump-led global trade war.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, plunged to near 105.00. Investors expect the effect of Trump’s tariffs to reduce purchasing power. Such a situation would slow down economic growth.

About New Zealand Dollar / U.S. Dollar

This currency pair is often referred to as trading the “Kiwi” because the $1 coin features the Kiwi bird. In 2012, the Reserve Bank of New Zealand stepped in to devalue the Kiwi because of its significant appreciation. It ranks as the world’s 10th most traded currency.

New Zealand’s economic challenges

In Q4 2024, the unemployment rate reached 5.1%, the highest level since late 2020. In combination with underemployed workers, that increased underutilisation from 10.7% in the previous year to 12.1%, indicating a growing slack in the labour market.

Employment dropped by 32,000, with men making up 85% of the decrease. The decline was in trades and machinery-related jobs, with full-time employment for men falling while part-time work increased. The participation rate fell to 71% from 71.2% three months prior, somewhat cushioning the increase in unemployment.

Wage growth in the private sector decreased, increasing by 0.6% for the quarter and 3% annually. Wage pressures are decreasing as underutilisation rises and employment declines. This supports a move towards looser labour market conditions. It also signals the need for additional monetary policy support from the RNBZ.

The outlook for domestic rates is more certain, but offshore factors, such as risk appetite and sentiment towards China, continue to influence the NZD/USD exchange rate.

Factors driving the New Zealand Dollar

The New Zealand Dollar (NZD), also called the Kiwi, is a popular traded currency for investors. The value of the NZD is generally determined by the health of New Zealand’s economy and the country’s central bank policy. But there are some unique characteristics that can also make the Kiwi move. China is New Zealand’s largest

trading partner which means that the performance of China’s economy can directly affect the NZD. If China’s economy slows down, demand for New Zealand exports falls, impacting New Zealand’s economy and weakening its currency. Another factor impacting the Kiwi is dairy prices. This is because the dairy industry is the main export of New Zealand. High dairy prices increase export income, and this has a positive impact on the economy and NZD.

NZD Rises on Risk Appetite and Weaker USD

RNBZ’s impact on the New Zealand Dollar

The goal of the Reserve Bank of New Zealand (RNBZ) is to maintain an 1% to 3% inflation rate over the medium term, and to keep it near the 2% mid-point. Therefore, the RNBZ sets a suitable level of interest rates. When inflation is too high, the RNBZ increases interest rates to slow down the economy. This also increases bond yields, attracting investors and strengthening NZD. The rate differential (how NZD rates are compared to rates set by US Federal Reserve) also play an important role in moving the NZD/USD currency pair.

Economic data and the value of the New Zealand Dollar

The New Zealand Dollar’s value can be affected by macroeconomic data releases, which are key to evaluating the country’s economic situation. The NZD benefits from a robust economy, low unemployment, and high confidence. Strong economic growth draws in foreign investment and if this strength comes with high inflation, it may persuade the RBNZ to raise interest rates. On the other hand, the NZD is likely to weaken if economic data is poor.

Risk sentiment and the New Zealand Dollar

When investors believe that there are low market risks and are optimistic about growth, the New Zealand dollar tends to strengthen.

The outlook for commodities and so-called ‘commodity currencies’, like the Kiwi, tends to improve. In contrast, when there is market volatility or economic uncertainty, investors tend to sell higher-risk assets and move to safer havens, which causes NZD to fall.

NZD/USD continues upward momentum

For the fourth consecutive session, NZD/USD continued its upward momentum trading at about 0.5730 on Thursday (6 March). As risk sentiment improved due to another shift in US President Trump’s tariff strategy, the currency pair gained from a weaker USD.

On Wednesday, (5 March) the White House announced that Trump is temporarily exempting carmakers for one month from recently imposed tariffs on Mexico and Canada. Furthermore, Bloomberg reports suggest that he is also thinking about excluding specific agricultural products from tariffs on these countries.

The US Dollar Index (DXY), which compares the USD to six major currencies, is trading at about 104.30. The weaker-than-expected US private payroll data has kept the Greenback under pressure, increasing concerns about slowing economic momentum in the US.

February’s ADP Employment Change report showed just 77,000 new positions, much below the 140,000 forecast and well below the March’s 186K reading. The US Nonfarm Payrolls (NFP) report is expected to show a moderate recovery in employment growth. Forecasts indicate that net job additions will rise to 160K in February, up from 143K in January.

Geopolitical concerns may limit further gains

Persistent geopolitical concerns may limit further gains for NZD/USD. A Chinese foreign ministry spokesperson stated that China is ready to fight “any type” of war in response to Trumps’s rising trade tariffs. As China is New Zealand’s largest trading partner, tensions like these could weigh on the New Zealand Dollar.

Following the unexpected resignation of RBNZ Governor Adrian Orr, traders are also keeping a close eye on domestic economic developments. With the country experiencing its worst economic downturn in thirty years, Orr’s departure leaves the central bank without a permanent leader.

Outlook and forecasts

ANZ Research has updated its mid-year NZD/USD target to 0.55, citing ongoing downside risks but expecting a slow recovery towards the fair value of 0.62 by end of the year.

The movement of the Kiwi will remain extremely sensitive to U.S. Federal Reserve Policy and global risk sentiment.

Disclaimer: This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.