New Zealand Dollar inches lower as NZIER backs steady OCR
- NZD/USD depreciates as most NZIER shadow board members back holding the Official Cash Rate steady at 2.25%.
- Members cited a supply-driven oil shock, rising 5.6% unemployment, and weak 0.2% GDP growth to support holding rates.
- Fed Governor Waller signaled the central bank should drop its easing bias, complicating the global economic landscape.
NZD/USD depreciates after opening at a higher level from the previous close, still remaining in the positive territory and trading around 0.5870 during the Asian hours on Monday. The New Zealand Dollar struggles against the US Dollar (USD) after a majority of the NZIER shadow board members backed holding New Zealand's Official Cash Rate at 2.25% on the May 27 policy decision.
NZIER shadow board members who favored holding the rate steady emphasized that the current oil price shock is supply-driven rather than demand-driven. They also pointed to softening economic indicators, noting that unemployment is heading toward 5.6% and the previous quarter's GDP growth sat at a sluggish 0.2%. Conversely, a minority of three members argued that monetary tightening should begin immediately, highlighting that real interest rates have remained low or negative for an extended period alongside rising inflation pressures.
The NZD/USD pair holds gains as the US Dollar loses ground on fading safe-haven demand amid increasing optimism over a potential US-Iran agreement, which has eased broader market concerns about inflation and impending Fed interest rate hikes.
An Axios report cited a US official, the United States (US), and Iran are close to signing an agreement that involves a 60-day ceasefire extension. Under this proposed deal, the Strait of Hormuz would be reopened, and Iran would agree to clear mines it deployed in the waterway while allowing ships to pass freely. In exchange for these actions, the United States would lift its current blockade on Iranian ports.
Meanwhile, investors are continuing to assess the future outlook for Federal Reserve (Fed) policy. This caution comes after Federal Reserve Governor Christopher Waller signaled that he no longer believes the central bank should retain an easing bias in its official policy statement, adding another layer of complexity to the global economic landscape.
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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