NZD/USD weakens to near 0.6050 on risk-off mood, escalating Middle East geopolitical tensions

NZD/USD attracts some sellers to around 0.6065 in Friday’s early Asian session.
Risk-off sentiment weighs on the New Zealand Dollar.
Progress on a US-China trade deal might cap the downside for the China-proxy Kiwi.

Lallalit Srijandorn FXStreet

The NZD/USD pair trades in negative territory near 0.6065 during the early Asian session on Friday. The New Zealand Dollar (NZD) softens against the US Dollar (USD) as losses in equity markets dampened risk sentiment. The advanced US Michigan Consumer Sentiment will be in the spotlight later on Friday.

The cautious mood and rising geopolitical tensions in the Middle East exert some selling pressure on riskier assets like the NZD. Israel is prepared to attack Iran in the coming days if Tehran rejects a US proposal to limit its nuclear program, the Wall Street Journal (WSJ) reported late Thursday, citing US and Israeli officials.

After two days of negotiations, the United States (US) and China agreed to a preliminary deal on how to implement the consensus the two sides reached in Geneva. That agreement paused US President Donald Trump’s 145% tariff on China and China’s 125% tariff on US exports, reducing them to 30% and 10%, respectively. Positive developments surrounding the world’s two largest economies might underpin the China-proxy Kiwi, as China is a major trading partner of New Zealand.

The weakness in the Greenback after cooler-than-expected US inflation data could also help limit the pair’s losses. The US Producer Price Index (PPI) rose 0.1% MoM in May, compared to a decline of 0.2% (revised from -0.5%), the Bureau of Labor Statistics reported on Thursday. This reading came in softer than the expectation of a 0.2% rise. Meanwhile, the core PPI, excluding food and energy, increased 0.1% MoM in May versus -0.2% prior (revised from -0.4%), below the consensus of 0.3%.

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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