Kiwi weakens as traders assess local policy signals and US economic data

New Zealand’s NZ$190M social investment fund fails to lift NZD amid cautious market mood. Fed Chair Powell flags the need to adapt the policy framework to persistent supply shocks. Cooling US inflation and soft retail sales weigh on sentiment, with the US Dollar supported by Powell’s policy remarks. The New Zealand Dollar (NZD) is weakening against the US Dollar (USD) on Thursday, pressured by a stronger Greenback and cautious investor reaction to recent macroeconomic developments. At the time of writing, NZD/USD is down 0.43% at 0.587, as markets assess New Zealand’s latest fiscal policy announcement, softer US inflation data, and comments from Federal Reserve (Fed) Chair Jerome Powell. US inflation cools, Retail Sales miss forecasts, but Powell’s comments steady the US Dollar The move lower in NZD/USD comes despite US data showing softer inflationary pressures, which would typically weigh on the Greenback and offer some support to risk-sensitive currencies like the Kiwi. April producer price inflation and core measures came in below expectations, reinforcing market bets that the Federal Reserve may begin cutting interest rates later this year. However, broader risk appetite was dented by a combination of weak US retail sales and cautionary remarks from Federal Reserve Chair Jerome Powell. Speaking on Thursday, Powell acknowledged that the Fed’s policy framework may require adjustment in response to more frequent supply shocks. “The framework needs to be robust to many circumstances, including a world where supply shocks may be more frequent and persistent,” Powell said, according to Reuters. He added that while structural changes may be needed, the central bank’s focus on maintaining well-anchored inflation expectations remains unchanged. These remarks, along with underwhelming consumer data, supported a mild bid into the US Dollar as traders reassessed the near-term growth outlook. New Zealand unveils social investment fund On the domestic front, the New Zealand government announced a NZ$190 million ($112 million) social investment fund as part of its upcoming 2025 budget. Finance Minister Nicola Willis described it as a targeted, data-driven initiative aimed at improving outcomes for vulnerable groups. “It’s about government investing earlier, smarter, and with much more transparent measurement of the impact interventions are having,” Willis said. While the program reflects a longer-term commitment to fiscal discipline and social outcomes, it offered little immediate support to the currency amid prevailing macro headwinds. Upcoming New Zealand data in focus as RBNZ outlook and growth signals take center stage Looking ahead, Thursday evening’s Business NZ Performance of Manufacturing Index and Friday’s RBNZ inflation expectations will be closely watched. The PMI, last at 53.2, serves as a gauge of economic momentum, while the inflation survey (previously 2.06%) could influence monetary policy expectations. A rise in inflation expectations would reinforce a hawkish RBNZ stance, potentially lending support to the Kiwi. 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. Source: https://www.fxstreet.com/news/nzd-usd-drops-on-new-zealand-fiscal-plans-powell-comments-mixed-us-data-202505151433