NZD/USD remains under pressure near 0.5710 in Tuesday’s Asian session. 

RBNZ is set to lower its OCR by 50 bps to 3.75% on Wednesday. 

The escalating trade war might boost the US Dollar. 

The NZD/USD pair attracts some sellers to around 0.5710 during the early Asian session on Tuesday. The rising expectation that the Reserve Bank of New Zealand (RBNZ) will deliver a jumbo-sized rate cut at the February meeting on Wednesday weighs on the New Zealand Dollar (NZD). 

The RBNZ is expected to slash the Official Cash Rate (OCR) by 50 basis points (bps) on Wednesday, bringing the rate down to 3.75%. Our base case is the RBNZ will cut by 25bp at each of the following two meetings, in April and May," said ASB chief economist Nick Tuffley.

RBNZ Governor Adrian Orr will hold a press conference after the rate decision, which might offer some hints about the interest rate path in New Zealand. Any dovish remarks from the RBNZ policymakers could exert some selling pressure on the Kiwi.

The concerns of tariffs and trade war might boost the safe-haven flows, benefiting the Greenback. US President Donald Trump on Friday maintained his drumbeat of tariff threats, stating that taxes on autos will begin as soon as April 2. This was the latest action in a series of trade measures he has announced since taking office for the second term. Meanwhile, the prospect that the US Federal Reserve (Fed) would stick to its hawkish stance amid elevated inflation might act as a tailwind for the pair in the near term. 

RBNZ FAQs

What is the Reserve Bank of New Zealand?

The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.

How does the Reserve Bank of New Zealand’s monetary policy influence the New Zealand Dollar?

The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.

Why does the Reserve Bank of New Zealand care about employment?

Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.

What is Quantitative Easing (QE)?

In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.

Source: FXSTREET

Germany is particularly vulnerable to US trade tariffs, which could curb growth for years to come and hold back an economy already suffering through two straight years of contraction, Bundesbank President Joachim Nagel said on Monday.

Germany, Europe's largest economy, has been in a deep industrial recession, due in great part to subsidised Chinese output crowding out German products at a time when soaring energy costs at home are already weighing on competitiveness.

Modelling projections based on tariff threats from U.S. President Donald Trump, the Bundesbank concluded that Germany would suffer but the U.S. would also take a hit that would more than offset any positive impact of the trade barriers.

"Our strong export orientation makes us particularly vulnerable," Nagel said in a speech. "Economic output in 2027 would be almost 1.5 percentage points lower than forecast," he added.

The Bundesbank sees the German economy growing by 0.2% this year and 0.8% in 2026, suggesting that a 1.5% point hit over the next three years would result in more economic contraction.

"Contrary to what the (U.S.) government has announced, the consequences of the tariffs for the USA should therefore be negative," Nagel added. "The loss of purchasing power and increased costs for intermediate inputs would outweigh any competitive advantages for U.S. industry."

Fabio Panetta, Italy's central bank chief, has also concluded that the U.S. would take a large hit.

Speaking on the weekend, he said that if all tariffs hinted at by Trump before the election were implemented and they were followed by retaliatory measures, global GDP growth would fall by 1.5 percentage points with the U.S. economy suffering a 2 percentage point hit.

The big risk, Panetta argued, was that Chinese firms shut out of the U.S. would seek new markets and could squeeze out European producers.

One saw only a minor impact while another anticipated a large increase in price pressures because retaliatory tariffs would be passed onto consumers while a weak euro would weigh on import costs, Nagel added.

Source: Theedgemarkets

The Indian Rupee weakens in Tuesday’s Asian session. 

Significant foreign fund outflows and strength in the US Dollar weigh on the INR. 

The RBI intervention might help limit the INR’s losses. 

The Indian Rupee (INR) depreciates on Tuesday. Analysts expect the local currency to trade with negative bias amid weakness in the domestic equities and Foreign Institutional Investors (FII) outflows. A recovery in the US Dollar (USD) and fears of a global trade war in response to Trump's tariff measures might contribute to the INR’s downside. 

Nonetheless, any significant decline in the INR might be capped amid further intervention by the Reserve Bank of India (RBI). Investors await the release of the NY Empire State Manufacturing Index for February, which will be released later on Tuesday. Also, the Federal Reserve's (Fed) Mary Daly is set to speak. 

Indian Rupee remains vulnerable amid FII outflows

India's trade deficit widened to $22.99 billion in January from December's $21.94 billion, according to government data on Monday.

India’s Exports stood at $36.43 billion in January, while Imports rose to $59.4 billion during the same reported period, said the government data.

The narrowing of the trade deficit was likely influenced by a decline in gold imports, as higher global prices reduced demand, according to a Union Bank of India report.

"The Indian rupee declined today on a weak tone in the domestic markets and a recovery in the US dollar index from intraday lows. However, a weak tone in crude oil prices and a decline in US Treasury yields cushioned the downside," said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan.

On Friday, US President Donald Trump maintained his drumbeat of tariff threats, stating that taxes on autos will begin as soon as April 2. It was the latest in a series of trade measures he has announced since taking office for the second time.

USD/INR’s broader trend remains constructive

The Indian Rupee trades on a softer note on the day. According to the daily chart, the USD/INR pair keeps the bullish vibe as the price is above the key 100-day Exponential Moving Average (EMA). Furthermore, upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands above the midline near 55.0, hinting that the path of least resistance is to the upside. 

The first upside barrier for USD/INR emerges at the 87.00 psychological level. A decisive break above this level, the pair could set its sights back up on an all-time high near 88.00, en route to 88.50. 

In the bearish event, the initial support level is located at 86.35, the low of February 12. A breach of the mentioned level could set off a drop to 86.14, the low of January 27.  

Source: FXSTREET

The Australian Dollar weakens as traders adopt caution ahead of the RBA’s policy decision on Tuesday.

The RBA is expected to lower its Official Cash Rate by 25 basis points to 4.10%.

The US Dollar gains ground due to improved Treasury yields.

The Australian Dollar (AUD) pauses its three-day winning streak against the US Dollar (USD) as traders await the Reserve Bank of Australia’s (RBA) policy decision on Tuesday. The central bank is widely expected to lower its Official Cash Rate (OCR) by 25 basis points (bps) to 4.10%, marking the first rate cut in four years. However, policymakers may adopt a cautious stance, as trimmed mean inflation remains above the RBA’s 2%-3% target range.

Signs of easing inflation in Australia have increased expectations for a rate cut in February. December data indicated slowing price pressures, with the latest quarterly Consumer Price Index (CPI) rising less than forecast in the final quarter of 2024. The RBA’s preferred inflation measure, the Trimmed Mean CPI, climbed 0.5% for the quarter—below the expected 0.6%—while the annualized rate declined to 3.2% from 3.5%.

The AUD/USD pair found support following US President Donald Trump's decision to delay the implementation of reciprocal tariffs. Additionally, the US Dollar (USD) weakened as a disappointing US retail sales report fueled speculation that the Federal Reserve (Fed) might cut interest rates later this year, despite lingering inflation concerns.

Australian Dollar declines as US Dollar gains ground on improved Treasury yields

The US Dollar Index (DXY), which tracks the US Dollar's performance against six major currencies, edges higher after registering losses in the previous three successive sessions due to improved US Treasury yields. The DXY trades around 106.80, while yields on 2-year and 10-year US Treasury bonds stand at 4.26% and 4.50%, respectively.

Federal Reserve Governor Michelle Bowman stated on Monday that rising asset prices may have slowed the Fed’s recent progress on inflation. While Bowman expects inflation to decline, she cautioned that upside risks remain and emphasized the need for more certainty before considering rate cuts.

Meanwhile, Fed Governor Christopher Waller acknowledged late Monday that while inflation has improved, progress has been “excruciatingly” slow. Waller stressed that the Fed must not allow policy uncertainty to hinder data-driven decision-making.

US Census Bureau reported on Friday that Retail Sales fell by 0.9% in January, following a revised 0.7% increase in December (previously reported as 0.4%). This decline was sharper than the market’s expectation of a 0.1% drop.

Fed Chair Jerome Powell said in his semi-annual report to Congress that the board officials “do not need to be in a hurry" to cut interest rates due to strength in the job market and solid economic growth. He added that US President Donald Trump's tariff policies could put more upward pressure on prices, making it harder for the central bank to lower rates.

On Monday, Chinese President Xi Jinping led a meeting with Alibaba co-founder Jack Ma and other prominent entrepreneurs, signaling Beijing’s renewed support for the private sector, which is now seen as crucial to economic recovery, according to Bloomberg. Xi emphasized the need to eliminate barriers that hinder equal access to production resources and fair market competition.

Australian Dollar moves below 0.6350; support appears at nine-day EMA

AUD/USD trades near 0.6340 on Tuesday, trending upward within an ascending channel pattern, indicating a bullish market bias. The 14-day Relative Strength Index (RSI) remains above the 50 level, further supporting the bullish outlook.

On the upside, the AUD/USD pair may challenge the upper boundary of the ascending channel at 0.6390, followed by the key psychological resistance at 0.6400.

Support levels include the nine-day EMA at 0.6316, followed by the 14-day EMA at 0.6300. A stronger support zone lies near the lower boundary of the ascending channel at 0.6280.

AUD/USD: Daily Chart

Australian Dollar PRICE Today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

Source: FXSTREET

New Zealand’s unemployment rate has accelerated to 5.1% in Q4 2024, a whisker below its Covid peak of 5.2% while Australia’s unemployment rate remained stable at 4%.

A further steepening of yield spreads between Australian and New Zealand sovereign bonds may trigger further upside in the AUD/NZD cross rate.

Watch the 1.0980 key medium-term support on AUD/NZD.

This week, the Antipodean countries’ central banks will decide their respective monetary policy; Australia’s RBA on Tuesday, 18 February, and New Zealand’s RBNZ on the following day on 19 February.

The Aussie and Kiwi have strengthened against the US dollar since 3 February when US President Trump “fired” his trade tariffs salvo against Canada, Mexico, and China. The AUD/USD and NZD/USD rallied by 4.6% and 4% in the past two weeks from their respective 3 February lows to 17 February at this time of writing.

Market participants have started to price in 25 basis points (bps) cut by RBA, its first cut in four years after being “late” to the global interest rate cut cycle (excluding Bank of Japan) to reduce its policy cash rate to 4.1%. A slowdown in the Australian inflation trend came in faster than the RBA anticipated where the trimmed mean gauge of consumer rose 3.2% y/y in Q4 2024 versus a higher consensus expectation of 3.3%.

Meanwhile, New Zealand’s RBNZ is expected to deliver another “jumbo size rate cut” of 50 bps after three consecutive rate cuts conducted in 2024 to reduce its official cash rate to 3.75% due to a deceleration in inflation trend and a rapid slowdown in growth conditions. Business confidence has declined for three consecutive months coupled with a 22-month streak of contraction in manufacturing PMI data.

A weaker New Zealand labour market is supporting a further steepening of AU/NZ sovereign bonds’ yield spread

Fig 1: AU & NZ unemployment rate with 2-year & 10-year  yield spreads of AU/NZ government bonds as of 18 Feb 2025 (Source: TradingView, click to enlarge chart)

New Zealand’s unemployment rate has accelerated to 5.1% in the three months through December 2024 which is almost its Covid peak of 5.2% recorded in Q3 of 2020 (see Fig 1).

Meanwhile, the unemployment rate for Australia remained stable at 4% for its latest reading of December 2024, within the range of 4.1% to 3.7% recorded in 2024.

The bleaker labour market condition in New Zealand increases the odds that RBNZ is likely to adopt a relatively more dovish monetary policy in 2025 over RBA.

Therefore, the 2-year and 10-year yield spreads between Australia and New Zealand sovereign bonds are likely to steepen further and, in turn, may ignite upside pressure on the AUD/NZD cross rate.

Potential bullish change of trend for AUD/NZD

Fig 2: AUD/NZD major and medium-term trends as of 18 Feb 2025 (Source: TradingView, click to enlarge chart)

Since 17 July 2024, the price actions of AUD/NZD have not been above to break above a “stubborn” range resistance of 1.1165/1190 as it continued to consolidate above a rising 200-day moving average.

Several positive technical elements have emerged that support a potential impending bullish breakout above 1.1165/1190 for the AUD/NZD.

Firstly, its price actions have started to trade above its 50-day moving average since 4 February.

Secondly, the daily MACD trend indicator has just staged a bullish breakout from its descending trendline resistance, and its centreline on 10 February suggests a potential start of a medium-term bullish momentum condition that may lead to higher price actions on the AUD/NZD (see Fig 2).

Watch the 1.0980 key medium-term pivotal support and clearance above 1.1190 may see the next medium-term resistances coming in at 1.1245 and 1.1430/1460 (also the upper boundary of a major ascending channel from 22 February 2024)

However, failure to hold above 1.0980 invalidates the bullish scenario for a corrective decline to expose the next medium-term supports at 1.0850 and 1.0735.

Source: ACTIONFOREX