NZD/USD softens to near 0.5850 as US–Iran tensions rise
- NZD/USD weakens to near 0.5865 in Monday’s early European session.
- Renewed tensions between the US and Iran weigh on the Kiwi.
- The New Zealand CPI and US Retail Sales reports will be the highlights on Tuesday.
The NZD/USD pair attracts some sellers to around 0.5865 during the early European session on Monday. The New Zealand Dollar (NZD) softens against the US Dollar (USD) amid heightened tensions between the United States (US) and Iran and the re-closing of the Strait of Hormuz.
On Sunday, Iran’s Foreign Ministry spokesman Esmail Baghaei stated that the US blockade of Iran’s ports and coastline is an act of aggression that violates the ceasefire. His comments came after Iran's fresh maritime threats in reaction to the US blockade, which completely closed the vital Hormuz Strait.
The annual New Zealand trade deficit was NZD 3.1 billion in March, compared to NZD 3.0 billion in February. Exports rose to a record high of NZD 7.94 billion in March, while Imports increased to NZD 7.25 billion.
Traders will keep an eye on New Zealand’s Consumer Price Index (CPI) inflation report for the first quarter (Q1), which is due on Tuesday. Any signs of hotter inflation in New Zealand could boost the Kiwi against the USD in the near term. On the USD’s front, the March Retail Sales will be in the spotlight.
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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