New Zealand Dollar drifts higher on hawkish RBNZ stance, traders eye on Middle East tensions
- NZD/USD drifts higher to around 0.5875 in Thursday’s early European session.
- Iranian officials said no progress has been made in the negotiations with the US.
- RBNZ’s hawkish stance could support the New Zealand Dollar.
The NZD/USD pair gains ground to near 0.5875, snapping the three-day losing streak during the early European session on Thursday. The potential upside for the New Zealand Dollar (NZD) might be limited as fresh Gulf hostilities sent oil prices higher and sapped risk appetite. The US Nonfarm Payrolls report for May will be in the spotlight later on Friday.
Iran’s Foreign Minister Abbas Araghchi said “no tangible progress” had been made in negotiations on ending the war. His comment came as the US and Iran exchanged fresh missile and drone strikes, further jejeopardizingfforts to secure an agreement.
Araghchi also warned that any Israeli attack on Beirut “will lead to a full-scale resumption of the war." Signs of prolonged tensions in the Middle East could boost a safe-haven currency such as the Greenback in the near term.
On the other hand, hawkish signals from the Reserve Bank of New Zealand (RBNZ) could underpin the Kiwi. RBNZ Governor Anna Breman said last week that the Official Cash Rate (OCR) is likely to increase sooner and by more than previously signalled, citing Middle East conflict-driven inflation, weaker growth and rising input costs across New Zealand and its trading partners. Markets have repriced the New Zealand rate outlook, with traders now expecting multiple hikes through early 2027.
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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