Kiwi Dollar Gains on Strong Business Confidence

Key Moments

New Zealand Dollar Climbs on Robust Business Sentiment

NZD/USD continued its upward trajectory for a third consecutive session, trading near 0.5810 during Asian hours on Thursday. The pair’s advance reflected firm demand for the New Zealand Dollar (NZD), supported by a marked improvement in domestic business confidence.

New Zealand’s ANZ Business Outlook Index rose sharply to 56.1 in July, compared with 36.6 in the prior month, marking its strongest level since February. The improvement was largely attributed to easing international oil prices as geopolitical tensions in the Middle East began to subside.

Hawkish RBNZ Expectations Underpin Kiwi Strength

Expectations for a more restrictive policy stance from the Reserve Bank of New Zealand (RBNZ) added to the NZD’s positive momentum. Following last week’s stronger-than-expected inflation data, market participants widely anticipate a 25-basis-point rate increase at the September policy meeting.

Futures pricing now reflects expectations for policy rates to reach at least 3.0% by year-end, with a projected peak around 3.5% by mid-2027.

Geopolitical Risks Still Threaten Energy Supply

Despite the recent relief from lower oil prices, TD Securities warned that fresh strains in the region are increasingly disrupting key energy shipping lanes. Strategists noted that “the return of Iranian-US strikes after a multi-day pause, along with continued Houthi risks for Saudi energy infrastructure, are keeping flows in both the Strait of Hormuz and Bab el-Mandeb heavily constrained,” emphasizing ongoing pressure on global oil supply routes.

Hawkish Fed Pause Poses Headwind for NZD/USD Upside

The upside for NZD/USD may be curtailed by renewed support for the US Dollar (USD) following a hawkish hold from the Federal Reserve (Fed). At its July policy meeting, the Fed left the federal funds rate in the 3.5%-3.75% band, in line with market expectations, but the decision masked a more aggressive policy bias.

Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed chief Neel Kashkari dissented, arguing instead for a 25-basis-point increase. During the press conference, Fed Chairman Kevin Warsh reinforced that, despite the lack of explicit forward guidance, the central bank stands ready to take whatever steps are necessary to bring inflation back to its 2% objective.

Fed Communication Keeps Dollar Tone Firm

The Fed’s latest Monetary Policy Statement registered a 7.4/10 score on the FXS Speechtracker, signaling a significantly more hawkish tone compared with the historical average reading of 4.9/10. By maintaining the target range at 3.50-3.75% while emphasizing elevated inflation, solid economic performance, and robust productivity and investment trends, the Fed conveyed confidence in growth and a strong focus on price stability. This message was reinforced by the 9-3 vote split, with three regional presidents backing an immediate hike.

The statement’s focus on ample reserves and stable labor markets highlighted a bias toward further tightening if inflation does not convincingly move toward the 2% target, creating a fundamentally supportive backdrop for the Dollar.

The FXS Fed Sentiment Index remained unchanged, moving 0.00 points to 128.64, a level that still indicates a decidedly hawkish policy setting. The combination of an elevated index reading and a stronger-than-average speech score suggests that, even without a rate move, the Fed continues to lean toward restrictive policy. This configuration is likely to keep Dollar buyers active and could restrain near-term gains in currencies such as the Euro and the Yen, while also limiting the upside potential for NZD/USD.