New Zealand Dollar slumps amid hawkish Fed bets, eyes on US PMI data

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.27%	0.30%	-0.10%	0.19%	0.82%	0.51%	0.21%
EUR	-0.27%		0.01%	-0.39%	-0.11%	0.51%	0.22%	-0.07%
GBP	-0.30%	-0.01%		-0.36%	-0.09%	0.51%	0.21%	-0.08%
JPY	0.10%	0.39%	0.36%		0.27%	0.90%	0.60%	0.29%
CAD	-0.19%	0.11%	0.09%	-0.27%		0.64%	0.33%	0.02%
AUD	-0.82%	-0.51%	-0.51%	-0.90%	-0.64%		-0.28%	-0.59%
NZD	-0.51%	-0.22%	-0.21%	-0.60%	-0.33%	0.28%		-0.32%
CHF	-0.21%	0.07%	0.08%	-0.29%	-0.02%	0.59%	0.32%

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).

According to the CME FedWatch tool, the odds of the Fed hiking interest rates this year are almost 87%, a sharp turnaround from two interest rate cuts projected before the onset of the Middle East war.

Hawkish Fed bets have been escalated due to rising both headline and core United States (US) inflation and an improvement in labor market conditions.

On the economic data front, investors await the preliminary US S&P Global Purchasing Managers’ Index (PMI) data for June, which will be published at 13:45 GMT. The US Services PMI is expected to arrive higher at 51.0 from 50.7 in May. Meanwhile, the Manufacturing PMI will likely come in lower at 54.7 from the previous reading of 55.1.

On the New Zealand (NZ) front, the Reserve Bank of New Zealand (RBNZ) is widely expected to raise its Official Cash Rate (OCR) by 25 basis points (bps) to 2.5% in its policy meeting in July, Reuters reports. Hawkish RBNZ expectations are backed by accelerated inflationary pressures. In the first quarter this year, the Consumer Price Index (CPI) data remained steady at 3.1%.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.