New Zealand Dollar softens below 0.5900 on US-Iran talks uncertainty, stronger US PMI data
- NZD/USD declines to around 0.5870 in Tuesday’s Asian session.
- Trump said the negotiations are Iran’s “last chance” to secure a deal to end the five-month conflict.
- New Zealand’s employment report will be in the spotlight later on Wednesday.
The NZD/USD pair loses traction to near 0.5870 during the Asian trading hours on Tuesday, pressured by stronger US economic data and safe-haven flows. Traders brace for New Zealand’s employment report, which will be published later on Wednesday.
Business activity in the US manufacturing sector expanded at an accelerating pace in July, with the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) climbing to 55.6 in July from 53.3 in June. This figure came in above the market consensus of 54.0.
Additionally, uncertainty surrounding US-Iran talks remains high, boosting a safe-haven currency such as the US Dollar (USD) against the New Zealand Dollar (NZD). US President Donald Trump said on Monday that he is giving Iran “every last chance” to reach a deal. Trump claimed that an agreement to reopen the Strait of Hormuz and denuclearize Tehran is “imminent."
Nonetheless, Iranian officials denied participating in direct talks with the US, saying that they are negotiating with mediators in Oman.
New Zealand’s unemployment rate is expected to climb to 5.4% in the second quarter (Q1) from 5.3% in the previous reading. Any signs of improvement in New Zealand’s labor market could lift the Kiwi in the near term.
Analysts from ASB expect the Reserve Bank of New Zealand (RBNZ) to keep tightening toward a 3.25% year-end Official Cash Rate (OCR), while Westpac is forecasting hikes in September and December that would take the OCR to 3.75% within a year.
Kiwi support builds as RBNZ outlook firms on stronger labor signals
Strategists at Brown Brothers Harriman highlight that the recent “improvement in the ANZ Business employment intentions index to a five-month high in June points to more favorable labor market conditions.” They add that this firmer labor backdrop, combined with “above target inflation,” “argue for additional RBNZ rate hikes which is NZD supportive,” reinforcing the constructive policy and currency narrative around New Zealand.
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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