NZD/USD slips below 0.5750 amid increased risk aversion
- NZD/USD continues its losing streak as traders adopt caution amid rising Middle East conflict.
- Reports indicate the US Pentagon is considering deploying up to 10,000 additional troops to Iran.
- RBNZ’s Breman said that the bank may overlook temporary inflation but hike rates if pressures persist.
NZD/USD extends its losing streak for the fifth successive day, trading around 0.5730 during the Asian hours on Monday. The pair depreciates as risk aversion intensifies amid fears of a potential United States (US) ground invasion in Iran.
A Wall Street Journal (WSJ) report indicated last week that the US Pentagon is considering sending 10,000 additional troops to Iran. In response, Ebrahim Zolfaqari issued a stark warning on Iranian state TV, stating that “US troops will be good food for sharks of the Persian Gulf.”
On the macro front, US economic data releases this week, including various labor market-linked indicators, particularly the Nonfarm Payrolls (NFP), as well as the ISM Purchasing Managers’ Index (PMI), are expected to influence market expectations for the Federal Reserve (Fed) monetary policy outlook.
In New Zealand, the ANZ–Roy Morgan Consumer Confidence Index fell sharply to 91.3 in March from 100.1 in February, marking a notable reversal amid uncertainty driven by the Middle East conflict, data showed last week.
ANZ Business Confidence and Activity Outlook figures are also due on Tuesday. Additionally, investors are also likely watching China’s March PMI readings, both official and private, given the country’s role as New Zealand’s largest trading partner, which adds to the cautious market tone.
Meanwhile, Reserve Bank of New Zealand (RBNZ) Governor Anna Breman stated last week that the central bank would look through temporary energy-driven inflation but stands ready to hike interest rates if persistent price pressures risk unanchoring inflation expectations. Since the conflict began, markets have increasingly priced in the possibility of earlier policy tightening to counter rising energy costs.
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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