NZD/USD price struggles as RBNZ inflation expectations decline amid Fed rate speculation
NZD/USD declines near 0.5640 as RBNZ inflation expectations fall
The New Zealand dollar (NZD) continues to face pressure in the forex market, trading near $0.5640 on Thursday after the Reserve Bank of New Zealand (RBNZ) released its latest monetary conditions survey. The data painted a mixed economic outlook, reinforcing speculation about further rate cuts by the central bank.
At the same time, the U.S. dollar remains strong, supported by higher-than-expected U.S. inflation figures, which are dampening hopes for a dovish shift by the Federal Reserve (Fed).
NZD/USD price analysis (Jan 2025 - Feb 2025) Source: TradingView.
NZ inflation expectations decline
The RBNZ’s two-year inflation expectations fell to 2.06% in Q1 2025 from 2.12% in Q4 2024, signaling weaker price pressures ahead. Meanwhile, one-year inflation expectations rose slightly to 2.15% from 2.05%, adding to the uncertainty around the central bank’s policy stance. The New Zealand dollar weakened in response, as traders anticipate another rate cut at the upcoming RBNZ meeting, following three cuts in 2024 that brought interest rates down to 4.25%.
Despite the weaker inflation outlook, the Kiwi managed to recover modestly to $0.565, buoyed by a softer U.S. dollar after an initial decline due to Fed policy concerns. Investors remain cautious, however, as Trump’s trade tariffs on steel, aluminum, and Chinese imports pose potential risks to New Zealand’s economy.
U.S. inflation data limits Fed rate cut speculation
The U.S. Consumer Price Index (CPI) rose 3.0% year-over-year in January, exceeding the expected 2.9%, while core inflation increased to 3.3% from 3.2%. On a monthly basis, headline inflation climbed to 0.5%, reinforcing the view that the Fed will maintain its hawkish stance for longer than anticipated.
With inflation remaining persistent, the CME FedWatch Tool indicates that the probability of a Fed rate cut in June has dropped to 30%, down from earlier expectations. The strengthening U.S. dollar continues to weigh on the NZD/USD pair, adding downward pressure amid diverging monetary policies between the two central banks.
Outlook: NZD/USD faces continued pressure
The near-term outlook for NZD/USD remains bearish, with key support at $0.5600 and resistance at $0.5675. Any signs of further RBNZ rate cuts could push the Kiwi lower, while continued U.S. inflation concerns may strengthen the greenback further.
Traders will closely watch next week’s RBNZ policy decision, along with any updates on US trade policy, which could influence market sentiment for the Kiwi dollar.
Previously discussed, the New Zealand dollar faced pressure amid RBNZ rate cut speculation and U.S. inflation concerns. The Fed’s hawkish stance continues to weigh on risk-sensitive currencies, limiting NZD/USD’s upside potential.
