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New Zealand Dollar declines below 0.5850 as US launches wave of strikes against Iran

  • NZD/USD declines to near 0.5840 in Friday’s early European session. 
  • The US launched a fresh wave of attacks on Iran, boosting a safe-haven currency such as the US Dollar. 
  • RBNZ’s Conway signaled further tightening as conflict lifts inflation risk. 

The NZD/USD pair edges lower to around 0.5840 during the early European session on Friday. The New Zealand Dollar (NZD) weakens against the US Dollar (USD) as escalating tensions in the Middle East trigger risk-off sentiment, weighing on the riskier assets. Traders await the preliminary reading of the Michigan Consumer Sentiment Index for July later on Friday. 

The US has carried out major strikes on Iran for the sixth day in a row. Officials in southern Iran’s Bandar Abbas reported that civilian infrastructure, including power facilities and a train station, has been hit.

Meanwhile, the Iranian Islamic Revolutionary Guards Corps (IRGC) said that no oil or gas will be exported through the Strait of Hormuz as long as US attacks continue, per Tasnim news agency. The IRGC said that it launched an attack on the US command center in Syria's Al-Tanf. The Iranian military further stated that it targeted US maritime surveillance radar in Oman.

Escalating conflict between the US and Iran could boost safe-haven flows, supporting the Greenback and creating a headwind for the pair in the near term. 

A hawkish tone from the Reserve Bank of New Zealand (RBNZ) could help limit the Kiwi’s losses. Last week, the RBNZ decided to raise its Official Cash Rate (OCR) by 25 basis points (bps) to 2.50% and hinted that further interest rate hikes may be necessary due to risks of persistent and sticky inflation. 

RBNZ chief economist Conway said earlier this week that the Middle East conflict has complicated monetary policy in the same way all supply shocks do. He added that developments in the Middle East over the past week point to upside risks to the RBNZ's September quarter forecast. 

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.

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Lallalit Srijandorn

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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