Key Moments
- NZD/USD traded around 0.5705 in Asian hours on Friday, holding firm above the 0.5700 level.
- China’s June Services PMI eased to 54.1 from 54.4 in May but still signaled the third-strongest expansion in nearly three years.
- ASB Bank now expects the RBNZ to keep the OCR unchanged in July and deliver 25-basis-point hikes from September, with rates reaching 3.25% by early 2027.
NZD/USD Supported by Chinese Services Momentum
The NZD/USD pair traded firmer around 0.5705 during Asian trading on Friday, with the New Zealand Dollar maintaining strength in the wake of fresh data from China. Liquidity conditions were affected by the closure of U.S. markets on Friday for the Independence Day holiday.
Figures released by RatingDog on Friday indicated that China’s Services Purchasing Managers’ Index (PMI) slipped slightly to 54.1 in June from 54.4 in May. Despite the modest decline, the reading still represented the third-sharpest gain in services activity in almost three years. Services exports increased for a second straight month and expanded at their fastest pace since October 2024. The China-sensitive Kiwi edged higher following the PMI release.
| China Services PMI Detail | Value |
|---|---|
| June Services PMI | 54.1 |
| May Services PMI | 54.4 |
| Notable context | Third-steepest services activity increase in nearly three years |
RBNZ Expectations Shift After ASB Bank Call
On the monetary policy front, ASB Bank has withdrawn its forecast for a Reserve Bank of New Zealand rate increase in July. The bank now anticipates that the RBNZ will leave the Official Cash Rate unchanged at the upcoming July meeting, before resuming tightening with a sequence of 25-basis-point hikes starting in September. Under this outlook, the OCR is projected to peak at 3.25% by early 2027.
| RBNZ Outlook (ASB Bank) | Expectation |
|---|---|
| July meeting | OCR on hold |
| Start of next hikes | September (25-basis-point steps) |
| Projected peak OCR | 3.25% by early 2027 |
U.S. Labor Data Weighs on Dollar
Signs of softening in the U.S. labor market have led market participants to scale back expectations for an imminent Federal Reserve rate hike, pressuring the U.S. Dollar against the New Zealand Dollar. Nonfarm Payrolls increased by 57,000 in June, according to data from the Labor Department’s Bureau of Labor Statistics released on Thursday, well below economists’ expectations for a 110,000 gain.
At the same time, the U.S. Unemployment Rate edged down to 4.2% in June from 4.3% in May. Following the employment report, market pricing reflected nearly a 52% probability of a U.S. rate hike by September, down from 66% before the release, based on the CME FedWatch tool.
| U.S. Labor and Fed Expectations | Detail |
|---|---|
| June Nonfarm Payrolls | 57,000 (vs. 110,000 expected) |
| Unemployment Rate (June) | 4.2% (down from 4.3% in May) |
| Odds of U.S. rate hike by September | Nearly 52% (down from 66% pre-data) |
New Zealand Dollar: Structure of Key Drivers
The New Zealand Dollar (NZD), commonly referred to as the Kiwi, is a widely traded currency whose performance is closely tied to New Zealand’s economic conditions and central bank policy. Beyond those broad drivers, several specific factors are particularly influential.
Impact of China and Dairy on NZD
China’s economic performance tends to have a pronounced impact on NZD because China is New Zealand’s largest trading partner. Negative developments in the Chinese economy can imply reduced demand for New Zealand exports, putting pressure on growth and the currency. Dairy markets are also crucial, as dairy products represent New Zealand’s main export. Strong dairy prices support export revenues, which can be positive for the broader economy and, in turn, for the New Zealand Dollar.
Role of the RBNZ in NZD Valuation
The Reserve Bank of New Zealand seeks to maintain inflation within a 1% to 3% band over the medium term, aiming to keep it close to the 2% midpoint. To achieve this, the RBNZ sets interest rates at levels it considers appropriate. When inflation is elevated, the central bank raises rates to cool demand, which typically lifts bond yields and can increase foreign investor interest in New Zealand assets, supporting NZD. Conversely, rate cuts generally weigh on the currency.
The rate differential between New Zealand and the United States – or how actual and expected RBNZ policy compares with that of the U.S. Federal Reserve – is another key determinant of NZD/USD movements.
Influence of Macroeconomic Data
Domestic macroeconomic releases are instrumental in gauging the health of New Zealand’s economy and can directly affect the NZD. Robust data, such as strong growth, low unemployment, and high levels of confidence, tend to be supportive for the currency. Such strength can attract foreign capital and may prompt the RBNZ to tighten policy further if accompanied by elevated inflation. Weak figures, by contrast, usually create downside pressure on NZD.
Risk Sentiment and the Kiwi
The New Zealand Dollar generally performs better in risk-on environments, when investors perceive lower overall market risk and hold a constructive view on global growth. Under such conditions, commodities and so-called commodity currencies, including the Kiwi, often benefit. In periods of financial stress or heightened uncertainty, investors tend to shed higher-risk assets and seek safety, which typically weighs on NZD as flows move into traditional safe-haven instruments.
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