New Zealand Dollar strengthens above 0.5800 on RBNZ hawkish outlook

NZD/USD edges higher to around 0.5820 in Thursday’s early European session.
Money markets solidified expectations the RBNZ will raise rates again following a hotter New Zealand inflation report.
Trump said Washington will destroy one bridge or power plant every time Iran targets a ship transiting the Strait of Hormuz.

Lallalit Srijandorn FXStreet

The NZD/USD pair gains ground to near 0.5820, snapping the two-day losing streak during the early European session on Thursday. The New Zealand Dollar (NZD) strengthens against the US Dollar (USD) on a hawkish tone from the Reserve Bank of New Zealand (RBNZ). Traders await the preliminary reading of the US Purchasing Managers Index (PMI), which will be published on Friday.

New Zealand’s Consumer Price Index (CPI) rose 1.5% QoQ in the three months ended June, with the annual inflation rate rising to 4.1% from 3.1% in the previous reading, Statistics New Zealand revealed on Tuesday. It was the highest annual rate since December 2023, and the quarterly increase the highest since September 2023.

Hotter-than-expected New Zealand inflation data for the second quarter has reinforced market expectations for a 25 basis points (bps) interest rate hike at the RBNZ's September policy meeting. This, in turn, could provide some support to the Kiwi against the USD in the near term.

On the other hand, ongoing conflicts in the Middle East have driven oil prices higher and might boost a safe-haven currency such as the USD. The US has launched a 12th consecutive night of strikes against targets in Iran, as Tehran threatened to launch more of its own attacks across the Gulf region. US President Donald Trump threatened to bomb a bridge or power plant for every ship targeted in the Strait of Hormuz.

Kiwi supported as RBNZ signals further OCR hikes

Brown Brothers Harriman’s Elias Haddad argues that “above target inflation and a more favorable domestic growth outlook argue for additional RBNZ rate hikes which is NZD supportive.” He notes that at its last July 8 meeting, the RBNZ raised the Official Cash Rate (OCR) by 25bps to 2.50% and “indicated that ‘further OCR increases appear likely at upcoming meetings,’” reinforcing the constructive backdrop for the Kiwi.

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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