NZD/USD declines below 0.5750 as Iran conflict supports US Dollar
- NZD/USD slumps to around 0.5725 in Thursday’s Asian session.
- Trump said the conflict in Iran would soon be ending, but US military would continue to hit targets there over the next few weeks.
- US March employment data will be the highlight on Friday.
The NZD/USD pair tumbles to near 0.5725 during the Asian trading hours on Thursday. The US Dollar (USD) edges higher against the New Zealand Dollar (NZD) as market caution persists due to the ongoing conflict in the Middle East, which boosts safe-haven demand.
US President Donald Trump said on Thursday that he expects the war with Iran to last another two to three weeks, but deemed it close to an end. Trump further stated that Iran's ability to launch missiles and drones has been curtailed. A White House official stated that the US President will focus on the operation having met or exceeded all of its benchmarks, including destroying Iran’s ballistic missiles and production facilities.
"Trump's comments failed to reassure markets ... markets are starting to realize that the war will probably escalate further from here before de-escalating," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
The attention will shift to the US employment report for March, which will be published later on Friday. The US economy is expected to show 60,000 job additions in March, while the Unemployment Rate is projected to hold steady at 4.4% during the same period. Any signs of weakening in the US labour market could drag the Greenback lower and act as a tailwind for the pair.
The Reserve Bank of New Zealand (RBNZ) will announce its interest rate decision next week. RBNZ Governor Anna Breman indicated the bank might "look through" temporary energy-driven inflation but could hike if long-term expectations are threatened.
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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