NZD/USD falls to near 0.5900 as risk aversion increases on Middle East war

NZD/USD weakens as a stronger US Dollar gains on rising energy prices.
US Dollar Index rises toward three-month highs above 99.50.
The NZD remains under pressure as investors remain cautious amid escalating geopolitical tensions in the Middle East.

Akhtar Faruqui FXStreet

NZD/USD remains weaker for the third consecutive day, trading around 0.5900 during the Asian hours on Thursday. The pair declines as the US Dollar (USD) remains stronger, as surging energy prices heightened inflationary risks and reduced the likelihood of Federal Reserve (Fed) interest rate cuts.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, rises toward three-month highs and is trading around 99.50 at the time of writing. Traders will now focus on the upcoming US Personal Consumption Expenditures (PCE) data due Friday for further policy clues.

US Consumer Price Index (CPI) released on Wednesday showed inflation rising 0.3% month-over-month (MoM) in February and 2.4% year-over-year (YoY), largely in line with market expectations. Core CPI, which excludes food and energy, increased 0.2% MoM and 2.5% YoY.

The relatively steady inflation figures reduced fears of a sudden surge in price pressures and reinforced expectations that the Federal Reserve may keep interest rates steady in the near term. Analysts note that the latest CPI report does not yet fully reflect the recent surge in oil prices caused by geopolitical developments.

The New Zealand Dollar (NZD) remains pressured as investors stay cautious amid rising geopolitical tensions in the Middle East. Surging energy prices are also fueling inflation concerns in New Zealand, with analysts expecting domestic price pressures to stay more persistent than previously anticipated, reinforcing expectations of further tightening by the Reserve Bank of New Zealand (RBNZ).

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD hangs close to monthly lows, still defends 0.7100 ahead of Fed decision

AUD/USD retains its negative bias for the third straight day, defending 0.7100 while trading close to a monthly low in Wednesday's Asian session on Wednesday. The US Dollar stands firm near a two-week high as the anticipated Fed rate hike and oil-driven inflation fears continue to push US bond yields to a multi-year high. Furthermore, escalating Middle East tensions benefit the safe-haven buck and weigh on the risk-sensitive Aussie.

USD/JPY holds firm above 155.00, awaits Fed policy announcements

USD/JPY climbs to a fresh one-week high above 155.00 in the Asian session on Wednesday amid a bullish US Dollar. Oil-driven inflation fears, along with the anticipated Fed rate hike, continue to support surging US bond yields. Moreover, rising US-Iran tensions underpin the USD's reserve currency status. The pair, however, remains below the mid-155.00s as bulls seem hesitant ahead of the Fed decision later today and the BoJ meeting, starting on Thursday.

Gold picks up pace prior to the Fed; revisits $4,350

Gold sets aside two daily declines in a row, gathering some composure and revisiting the $4,350 zone per troy ounce amid decent gains on Wednesday. The precious metal’s recovery comes despite an acceptable advance in the US Dollar and declining US Treasury yields prior to the anticipated rate hike by the Fed.

XRP Price Forecast: XRP clings to 50-day EMA support after CLARITY Act setback

Ripple (XRP) trades lower around $1.28 on Wednesday, as investors broadly assess the impact of the failed United States (US) Senate vote on the CLARITY Act and the upcoming Federal Reserve (Fed) monetary decision. The remittance token has trimmed early-week gains that tagged highs around $1.50 on Monday and now holds key moving-average support.

Federal Reserve set to raise interest rate after five meetings on hold

The United States (US) Federal Reserve (Fed) announces its interest rate decision on Wednesday, following another pivotal meeting that could provide key insights into the monetary policy outlook heading into the end of the year.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.