New Zealand dollar rises, while dovish RBNZ bets limit gains
NZD/USD climbs but faces RBNZ easing pressure
The New Zealand dollar (NZD) edged higher to around $0.5655 during Monday’s early European session, building on momentum from the previous trading day. Despite the modest recovery, the Kiwi remains under pressure from expectations of aggressive monetary easing by the Reserve Bank of New Zealand (RBNZ).
Market participants are assigning a 65% probability that the RBNZ will reduce its cash rate by 50 basis points to 4.25% during its February meeting.
NZD/USD price dynamics (Oct 2024 - Dec 2024) Source: TradingView.
RBNZ policy expectations and external influences
Dovish bets on the RBNZ continue to weigh heavily on the New Zealand dollar. Expectations for significant rate cuts reflect concerns about the domestic economic outlook. At the same time, the Kiwi faces external headwinds from a robust U.S. dollar, supported by rising Treasury yields and the Federal Reserve’s cautious approach to monetary easing.
The Fed recently hinted at a more conservative stance, reducing its projected rate cuts for 2025 to two quarter-point reductions instead of four. This adjustment, combined with steady inflation and stronger U.S. economic data, has bolstered the Greenback and capped the NZD/USD pair’s upside potential.
China’s stimulus offers partial support
In a positive development for the Kiwi, fresh stimulus measures from the Chinese government have introduced a glimmer of hope. China, a key trading partner for New Zealand, announced initiatives to boost private consumption, including direct financial support for citizens struggling with rising costs. Such measures may provide some support for the Kiwi, given New Zealand’s economic ties with China.
Looking forward, the NZD/USD pair’s trajectory will depend on further developments in monetary policies from the RBNZ and the Fed, as well as the effectiveness of Chinese economic stimulus efforts. Traders will closely watch RBNZ decisions in February and the U.S. central bank’s updates on inflation and employment data.
In our earlier analysis, we focused on NZD/USD’s struggles near $0.5615, driven by China’s economic slowdown and dovish RBNZ expectations. These challenges persist, continuing to shape the pair’s performance.
