NZD/USD rises to near 0.5950 as risk-on mood supports New Zealand Dollar

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NZD/USD appreciates after registering modest losses in the previous day, trading around 0.5940 during the Asian hours on Friday. The pair holds gains as the New Zealand Dollar (NZD) receives support from improving market sentiment driven by the de-escalation of renewed tensions in the Middle East.

NZD/USD advances as easing Middle East tensions improve market sentiment.
CENTCOM said US forces launched self-defense strikes on Iran but do not seek further escalation.
Markets see slim odds for the RBNZ’s May hike, while a July increase remains fully priced in.

The US military’s Central Command (CENTCOM) stated that United States (US) forces intercepted on Thursday what it described as unprovoked Iranian attacks and carried out self-defense strikes while US Navy guided-missile destroyers were transiting the Strait of Hormuz toward the Gulf of Oman. CENTCOM added that it does not seek further escalation but remains prepared to defend US personnel and assets.

US President Donald Trump also said that the ceasefire between the US and Iran remains in effect. A senior US official told Fox News that the recent attacks should not be viewed as a restart of the war or as signaling the collapse of the existing ceasefire arrangement.

Markets see limited odds of a Reserve Bank of New Zealand’s (RBNZ) rate hike later this month, although a July increase remains fully priced in amid inflation concerns driven by higher energy costs. The RBNZ stated that the financial system remains resilient despite elevated global risks, but cautioned that a slower economic recovery could put pressure on employment conditions.

However, gains in the NZD/USD pair may remain limited as the US Dollar (USD) stays supported while traders remain cautious following US military strikes on the Iranian port city of Bandar Abbas and Qeshm Island in the Strait of Hormuz.

The Trump administration is awaiting Iran’s response to a proposal aimed at reopening the Strait of Hormuz and ending the nearly 10-week conflict, although tensions remain elevated across the Persian Gulf and Lebanon. Reports suggest that Tehran is expected to deliver its response through Pakistan within the next two days.

Traders are also closely watching the upcoming April US employment report, which is forecast to show Nonfarm Payrolls increased by 62K jobs in April, compared with 178K in March, while the Unemployment Rate is expected to hold steady at 4.3%.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.