Key Moments
- NZD/USD trades near 0.5735 in early European dealings on Thursday, extending its move above 0.5700.
- The RBNZ lifted its Official Cash Rate by 25 bps to 2.50% and signaled that further tightening may be required.
- Softer Chinese CPI data and rising U.S.-Iran tensions pose potential headwinds for the New Zealand Dollar.
NZD/USD Supported by RBNZ Rate Hike
The NZD/USD pair is edging higher toward 0.5735 in Thursday’s early European session, with the New Zealand Dollar advancing against the US Dollar. The move follows a hawkish rate decision by the Reserve Bank of New Zealand (RBNZ). Market participants are also awaiting the release of the US weekly Initial Jobless Claims later on Thursday.
At its July meeting on Wednesday, the RBNZ increased the Official Cash Rate (OCR) by 25 basis points to 2.50% from 2.25%, in line with broad expectations. The central bank indicated that further policy tightening may be required as it seeks to guide inflation back to target. This stance comes despite easing energy prices and an economy that is described as only slowly regaining momentum.
Chinese Inflation Data Limits Upside for the Kiwi
The New Zealand Dollar’s advance is facing resistance from weaker inflation figures out of China, a key economic partner for New Zealand and an important driver for the so-called China-proxy Kiwi.
According to data from the National Bureau of Statistics of China released on Thursday, the Consumer Price Index (CPI) rose 1.0% in June, following a 1.2% increase in May. The outcome missed the market expectation of a 1.1% rise.
On a month-on-month basis, Chinese CPI printed at -0.3% in June, compared with a prior decline of 0.1% and below forecasts for a 0.2% fall.
| Chinese CPI Data | June | May | Market Consensus |
|---|---|---|---|
| Year-on-year | 1.0% | 1.2% | 1.1% |
| Month-on-month | -0.3% | -0.1% | -0.2% |
Geopolitical Tensions and Safe-Haven Flows
Developments in the Middle East are adding another layer of uncertainty for NZD/USD. The US has carried out renewed strikes on Iran for a second consecutive day, prompting Iranian attacks on Kuwait and Bahrain, according to the Guardian. These actions represent a further escalation that threatens to undermine efforts to halt the conflict.
US President Donald Trump said that strikes would “get much worse” if Tehran again attacked ships in the strait after saying he thought the ceasefire was “over.”
Meanwhile, Iran’s top negotiator said it would retaliate against attacks and said the strait “will only open with ‘Iranian arrangements,’ not American threats.” Heightened tensions in the region could increase demand for safe-haven assets such as the US Dollar, potentially limiting further gains in NZD/USD in the near term.
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