New Zealand Dollar remains depressed against firmer USD; hawkish RBNZ limits losses

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The NZD/USD pair trades with a negative bias for the second straight day, albeit it lacks bearish conviction and holds above the previous day's swing low. Spot prices currently trade near the 0.5925-0.5920 region, down around 0.15% for the day on the back of a modest US Dollar (USD) strength.

NZD/USD attracts some sellers for the second straight day amid a modest USD strength.
Geopolitical uncertainties and rising Fed rate hike bets offer some support to the buck.
The RBNZ’s abrupt hawkish shift could act as a tailwind for the NZD and help limit losses.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, looks to build on the previous day's gains amid the uncertainty over US-Iran peace talks and hawkish US Federal Reserve (Fed) expectations. In fact, US President Donald Trump asserted that peace talks were ongoing with Iran, and said that he will have an agreement to extend the ceasefire and reopen the Strait of Hormuz over the next week. Iran, however, warned that it would suspend negotiations following fresh US strikes and an Israeli military operation in Lebanon.

This keeps geopolitical risk premium in play and acts as a tailwind for the safe-haven USD. Meanwhile, renewed tensions in the Middle East continue to fuel concerns over inflation and expectations that the US central bank will raise borrowing costs by the end of this year. According to the CME Group's FedWatch Tool, traders are assigning over a 50% chance that the Fed will hike interest rates by at least 25 basis points (bps) at the December policy meeting. This turns out to be another factor underpinning the USD and exerting pressure on the NZD/USD pair.

The downside, however, seems limited in the wake of the Reserve Bank of New Zealand's (RBNZ) abrupt hawkish shift. The central bank's forecast strongly projects a 25 bps rate increase at the upcoming July 8 meeting and indicated that the OCR could reach roughly 2.85% by the end of this year, implying up to three rate hikes. This might continue to lend some support to the New Zealand Dollar (NZD) and hold back traders from placing aggressive bearish bets around the NZD/USD pair, warranting caution before positioning for any further losses.

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.21%	0.04%	0.21%	0.34%	0.22%	0.80%	0.74%
EUR	-0.21%		-0.17%	0.02%	0.13%	0.01%	0.62%	0.54%
GBP	-0.04%	0.17%		0.21%	0.30%	0.17%	0.79%	0.69%
JPY	-0.21%	-0.02%	-0.21%		0.15%	0.05%	0.60%	0.52%
CAD	-0.34%	-0.13%	-0.30%	-0.15%		-0.13%	0.45%	0.39%
AUD	-0.22%	-0.01%	-0.17%	-0.05%	0.13%		0.61%	0.53%
NZD	-0.80%	-0.62%	-0.79%	-0.60%	-0.45%	-0.61%		-0.10%
CHF	-0.74%	-0.54%	-0.69%	-0.52%	-0.39%	-0.53%	0.10%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).