The NZD/USD pair posts modest gains near 0.5855 during the early Asian session on Friday. Nonetheless, ongoing conflicts in the Middle East might cap the upside for the Kiwi against the US Dollar (USD). Traders await the US Personal Consumption Expenditures (PCE) Price Index report for January later on Friday for fresh impetus.
US President Donald Trump said that preventing Iran from having nuclear weapons and threatening the Middle East is “of far greater interest and importance to me” than the cost of oil. Meanwhile, Iran’s new supreme leader, Mojtaba Khamenei, stated that Tehran would seek to ensure the Strait of Hormuz remains effectively closed. Traders could seek safety amid heightening geopolitical tensions, which might lift the US Dollar (USD) against the New Zealand Dollar (NZD).
Friday’s US inflation data, the Fed’s preferred price gauge, will take center stage on Friday. This report could shape the US Federal Reserve (Fed) interest rate expectations. The headline PCE is expected to see an increase of 2.9% YoY in January, while the core PCE is projected to see a rise of 3.1% during the same period.
Any signs of softer inflation in the US could weigh on the Greenback and act as a tailwind for the pair. Markets are currently pricing in a 99% chance that the Fed will hold interest rates steady at its next meeting, according to the CME FedWatch tool.
On the Kiwi front, Reserve Bank of New Zealand (RBNZ) Governor Anna Breman said that monetary policy will likely remain accommodative for some time to support a fragile economy. Financial markets have shifted significantly toward pricing in at least two Official Cash Rate (OCR) hikes by the end of 2026, driven primarily by an energy-price shock following conflicts in the Middle East.
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.
