The Kiwi topped the G10 FX leaderboard on Thursday as stronger economic data, narrowing Australia-New Zealand rate differentials and improving technicals aligned in its favour.
- Manufacturing survey delivers blockbuster upside surprise
- RBNZ tightening cycle gains fresh credibility
- RBA rate expectations continue to unwind
- AUD/NZD technical breakdown gains momentum
- NZD/USD breakout shifts focus higher
New Zealand may be on holiday, but the Kiwi dollar certainly wasn’t on Thursday. It topped the G10 FX leaderboard after strong data reinforced the RBNZ’s message from earlier this week that further rate hikes are likely.
Factory Floor Fires Up
The catalyst for the outperformance was a blockbuster BNZ PMI. The headline index surged to 59.7 in June, its highest reading since July 2021. Excluding the pandemic rebound, it was the strongest result since May 2017, underpinned by a sharp lift in new orders, production, deliveries and employment. Respondents reported stronger sales, growing order books and renewed confidence, outweighing concerns about Middle East tensions and cost-of-living pressures.
A Hawkish Roadmap
The survey’s release was timely, arriving just days after the RBNZ lifted its cash rate to 2.5%, the first increase of a new tightening cycle. Policymakers retained a hawkish bias, saying “some further reduction in monetary stimulus is likely to be required” to return inflation sustainably to the 2% target midpoint.
Speaking after the decision, RBNZ Governor Anna Breman said they were “feeling our way” as they sought to identify New Zealand’s neutral cash rate, the level where it is neither stimulatory nor restrictive on economic activity. She suggested it may sit somewhere between 2.5% and 3.5%, implying 3% may be the Bank’s initial destination for policy.
Mind the Gap
That’s important because relative rate expectations have long been one of the key macro drivers for , making recent shifts in pricing on either side of the Tasman particularly important.
Source: Bloomberg
While the RBNZ has just embarked on a fresh tightening cycle, the RBA is likely much closer to the end of its own, or perhaps already there, after lifting its cash rate three times, unwinding the easing conducted in 2025. Although it has left the door open to further increases, softer domestic economic data and easing energy prices have seen markets scale back expectations for additional tightening. Just a few months ago, traders were flirting with the idea that the cash rate may need to near 5%. Today, there’s only around an even chance of another 25 basis point increase to 4.60%.
Source: Tradingview
Thursday’s data saw the – spread compress by 14 basis points, the largest one-day decline since March 9. While the catalyst was New Zealand’s stronger-than-expected manufacturing PMI, the broader narrowing in spreads has been driven just as much by the steady unwinding of hawkish RBA pricing over recent months.
Connecting the Dots
The rates relationship is evident in the correlation matrix below, with Australia-New Zealand 2-year yield spreads maintaining a consistently positive correlation with AUD/NZD across the past week, month and quarter.
Source: Tradingview
Energy prices have also been somewhat influential. While both Australia and New Zealand are heavily reliant on imported petroleum, Australia is also one of the world’s largest LNG exporters. It’s perhaps no surprise then that AUD/NZD has also maintained a strong positive correlation with prices over the past month, particularly over the past week, reflecting the terms of trade impact of fluctuations in gas prices on the .
AUD/NZD Trendline Snaps
Source: Tradingview
It’s not only fundamentals that are pointing to the risk of Kiwi outperformance against the Australian dollar, with the technical picture increasingly aligning with that view. Thursday saw AUD/NZD break below its June 2025 uptrend, doing so emphatically while also slicing through the 100-day moving average, a level it had remained above since July last year.
The breakdown follows the formation of a series of lower highs and the completion of what resembles an evening star bearish reversal after the pair spent several sessions flirting with the 50-day moving average earlier this week. The question now is whether Thursday’s breakdown attracts another wave of selling on Friday.
The immediate focus is the June 10 low at 1.2053. Should that give way, attention shifts to 1.2000, a level that’s repeatedly acted as both support and resistance in recent months, followed by 1.1950. Below that sits the 23.6% Fibonacci retracement of the May 2025-June 2026 bull move, a level the pair also spent considerable time trading around back in March. The 200-day moving average at 1.1813, sitting just above the former breakout level at 1.1797, shapes as a more ambitious downside target.
Overhead, the broken June 2025 uptrend and 100-day moving average, located just below 1.2100, combine with horizontal resistance at 1.2115 to create an important resistance zone should buyers attempt to regain control.
Momentum indicators continue to favour the bears. RSI (14) is trending lower below 50 without yet reaching oversold territory, while MACD has crossed below its signal line and continues to diverge in negative territory, favouring selling into strength and downside breaks.
NZD/USD Triangle Delivers
Source: Tradingview
There are also signs the improving backdrop is beginning to spill over into . As noted yesterday, the pair was threatening to break higher from an ascending triangle, a move that’s since played out through the European and North American sessions.
The breakout shifts the focus to 0.5774, a level that’s repeatedly acted as both support and resistance this year. A sustained move above there would bring a cluster of key moving averages into view, starting with the 50-day moving average at 0.5815. While the 50-day moving average has recently crossed below the 200-day moving average, completing a death cross, that signal is being overridden by the improving fundamental backdrop and recent price action. Should that view prove misplaced and a retracement unfold, the former breakout level at 0.5724 is the first area to watch for support.
Momentum indicators point to the potential for further gains. RSI (14) continues to trend higher and has reclaimed the neutral 50 level, while MACD has completed a bullish crossover. Although it remains below zero, it’s continuing to push higher, suggesting the bearish momentum that dragged NZD/USD to fresh 2026 lows in late June has dissipated and may be in the early stages of reversing, pointing to the potential for an extension of Thursday’s breakout.
