- NZD/USD depreciated as the US became directly involved in the Israel-Iran dispute.
- The United States attacked Iran's three nuclear facilities, including Fordow, Natanz, and Isfahan.
- The New Zealand Dollar remains under pressure as markets anticipate just one remaining rate cut by November.
NZD/USD continues its losing streak for the third successive session, trading around 0.5900 during the European hours on Monday. The NZD/USD pair loses ground amid dampened risk sentiment, driven by the escalating Middle East tension. Traders await the S&P Global US Purchasing Managers Index (PMI) data for June, scheduled later in the day.
On Saturday, US President Donald Trump announced that he had "obliterated" Iran's three nuclear facilities, including Fordow, Natanz, and Isfahan, in strikes overnight, in coordination with an Israeli assault. Iranian parliament approved a measure to shut down the Strait of Hormuz. Iran has threatened to close the strait in the past but has never followed through on the move, per Reuters.
The NZD/USD pair depreciates as the US Dollar (USD) holds ground amid increased safe-haven demand. The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, is trading at around 99.600 at the time of writing.
On Friday, Federal Reserve (Fed) Governor Christopher Waller said that the US central bank could start cutting interest rates as soon as next month, signaling flexibility amid global economic uncertainty and rising geopolitical risks.
Last week, New Zealand’s GDP grew more than expected in the first quarter, marking the second consecutive quarter of expansion after two quarters of contraction. This supports market expectations that only one more rate cut remains in the current easing cycle, likely to be fully priced in by November. Focus will shift toward New Zealand’s economic indicators this week, including trade balance and consumer confidence data, for further insight into the country’s economic outlook.
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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