New Zealand Dollar advances above 0.5700 on RBNZ hawkish stance

NZD/USD drifts higher to near 0.5735 in Thursday’s early European session.
RBNZ hawkish stance supports the New Zealand Dollar.
The US and Iran threatened more attacks for a second day.

Lallalit Srijandorn FXStreet

The NZD/USD pair gains momentum to around 0.5735 during the early European session on Thursday. The New Zealand Dollar (NZD) strengthens against the US Dollar (USD) on a hawkish interest rate hike from the Reserve Bank of New Zealand (RBNZ). The US weekly Initial Jobless Claims report will be published later on Thursday.

As widely expected, the RBNZ raised its Official Cash Rate (OCR) by 25 basis points (bps) to 2.50% from 2.25% at its July meeting on Wednesday. The central bank signalled that additional tightening may be needed, as policymakers sought to ensure inflation returns to target despite easing energy prices and an economy that is only gradually regaining momentum.

However, softer Chinese inflation data might cap the upside for the China-proxy Kiwi. Data released by the National Bureau of Statistics of China on Thursday showed that the Consumer Price Index (CPI) climbed 1.0% in June, compared to a rise of 1.2% in May. This figure came in below the market consensus of 1.1%.

On a monthly basis, Chinese CPI inflation arrived at -0.3% MoM in June versus a decline of 0.1% prior, softer than the expectation of a 0.2% fall.

The US has renewed strikes on Iran for a second day running, triggering Iranian attacks on Kuwait and Bahrain in the latest escalation to derail efforts to end the war, per the Guardian. US President Donald Trump said that strikes would “get much worse” if Tehran again attacked ships in the strait after saying he thought the ceasefire was “over.”

Meanwhile, Iran’s top negotiator said it would retaliate against attacks and said the strait “will only open with ‘Iranian arrangements,’ not American threats.” Rising tensions in the Middle East could boost a safe-haven currency such as the Greenback and act as a headwind for the pair in th near term.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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