New Zealand Dollar holds steady near 0.5750 as US launches new wave of strikes against Iran

NZD/USD flatlines around 0.5760 in Monday’s early European session.
The US launched a new wave of strikes against Iran, lifting a safe-haven currency such as the US Dollar.
New Zealand’s Business NZ PSI rose to 50.6 in June from the previous reading of 48.0.

Lallalit Srijandorn FXStreet

The NZD/USD pair trades on a flat note near 0.5760 during the early European trading hours on Monday. Escalating geopolitical tensions in the Middle East following the US's launch of fresh missile attacks against Iran on Sunday boost the US Dollar (USD) as a safe-haven asset.

The US military has launched a new wave of attacks against Iran amid the escalating standoff over the Strait of Hormuz, with Tehran saying the latest strikes had “rendered futile” all the diplomatic efforts of the past few months, per the Guardian.

Iran retaliated by attacking nations in the region hosting US military forces. Kuwait said strikes hit border posts and an oil rig, while Qatar reported injuries from interceptions. Oman, Jordan and the United Arab Emirates (UAE) also said they detected fire. Ongoing geopolitical conflicts in the Middle East could provide some support to the Greenback in the near term.

On the Kiwi front, stronger New Zealand’s economic data and hawkish bias from the Reserve Bank of New Zealand (RBNZ) might underpin the New Zealand Dollar (NZD). Data released by Business NZ earlier Monday showed that the Business NZ Performance of Services Index (PSI) improved to 50.6 in June, compared to 48.0 in May (revised from 47.5).

Last week, the RBNZ raised the Official Cash Rate (OCR) by 25 basis points (bps) to 2.50% at its July policy meeting. This marks the central bank's first interest rate hike in over three years. The central bank signaled that further rate hikes are likely later this year.

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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