New Zealand Dollar softens below 0.5800 ahead of US PPI release
- NZD/USD weakens to around 0.5795 in Thursday’s early European session.
- US and Iran trade strikes for the second day, weighing on the New Zealand Dollar.
- The US May PPI inflation report will be published later on Thursday.
The NZD/USD pair loses traction to near 0.5795 during the early European trading hours on Thursday. Renewed skirmishes between the United States (US) and Iran undermine the New Zealand Dollar (NZD) against the US Dollar (USD). Traders brace for the US Producer Price Index (PPI) report, which is due later on Thursday.
The US and Iran have exchanged strikes for the second night in a row. Washington characterized their attacks as "self-defense strikes." It came after US President Donald Trump vowed, "We hit them hard yesterday, and we're going to hit them again hard today.” Meanwhile, Iran’s top joint military command said that it is closing the Strait of Hormuz for “passage of any vessels," adding that any vessel that attempts passage will be targeted.
The continued back-and-forth of attacks raises concerns about the status of diplomatic efforts to end the war, which boosts a safe-haven currency such as the Greenback and creates a headwind for the pair.
The US PPI inflation report will be in the spotlight later on Thursday. The headline PPI is expected to show a rise of 6.4% YoY in May, compared to 6.0% in April, while the core PPI is projected to show an increase of 5.4% versus 5.2% prior. Any further signs of hotter inflation in the US could lift the USD in the near term.
However, a hawkish stance from the Reserve Bank of New Zealand (RBNZ) might help limit the Kiwi’s losses. RBNZ Governor Anna Breman said that the Official Cash Rate (OCR) is likely to increase sooner and by more than previously signaled, 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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