NZD/USD moves below 0.5850 amid increased risk aversion
- NZD/USD weakens as risk aversion increases after fresh Israeli strikes hit Tehran.
- Israel struck Iran despite Trump signaling a pause in energy attacks.
- RBNZ Governor Breman warned that near-term inflation may rise due to energy shocks.
NZD/USD has pared its recent gains from the previous day, trading around 0.5830 during the Asian session on Tuesday. The pair depreciates as the US Dollar (USD) gains on increased risk aversion after the Israeli military said it had launched a fresh wave of strikes on Tehran.
However, Israel launched its latest strike on Iran despite US President Donald Trump signaling a pause in attacks on energy infrastructure following what he described as productive talks with Tehran. The Israeli Defense Forces (IDF) said operations would continue in line with government directives until further notice.
Moreover, Iran’s Foreign Minister Abbas Araghchi denied any dialogue with Washington. Iranian Parliament Speaker Mohammad Bagher Ghalibaf also stated on Monday that no negotiations had taken place with the US. Meanwhile, senior military adviser Mohsen Rezaei said the conflict would continue until Iran receives full compensation for the damage incurred.
Reuters reported that San Francisco Fed President Mary Daly said that unless the Iran conflict eases quickly and the Fed can look through a temporary oil price spike, the outlook for interest rates remains uncertain.
Reserve Bank of New Zealand (RBNZ) Governor Anna Breman noted that near-term inflation could rise due to energy shocks. While the central bank may look past temporary price spikes, she signaled that rate hikes could be required if inflation pressures become persistent.
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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