NZD/USD drops 0.26% to 0.5685, pressured by tensions in the Middle East and dollar strength, while the market awaits an RBNZ rate hike.
The New Zealand dollar (NZD) continues its downward trend against the US dollar (USD) this Tuesday, with the NZD/USD pair trading around 0.5685, representing a 0.26% decline during the session. The kiwi currency is weighed down by renewed demand for the greenback, driven by escalating geopolitical tensions in the Middle East.
According to Bloomberg, citing a US official, Iran launched at least two missiles at commercial vessels transiting through the Strait of Hormuz on Monday night. Two vessels sustained significant damage, although no casualties were reported. UK Maritime Trade Operations confirmed that a tanker was hit by an unidentified projectile.
Geopolitical Tensions Boost Dollar Demand
The escalation of tensions in one of the world's most strategic maritime routes has driven flows towards safe-haven assets, benefiting the US dollar. This context of global uncertainty is weighing on risk-sensitive currencies, such as the New Zealand dollar.
Meanwhile, expectations regarding the Federal Reserve's (Fed) monetary policy also play a role. Following the recent slowdown in the US labour market, investors anticipate that the Fed will keep rates unchanged at its July and September meetings. The drop in oil prices, driven by increased OPEC+ production and the peace agreement between the US and Iran, is alleviating inflationary pressures, reinforcing this perception.
RBNZ in Focus: 25 Basis Point Rate Hike
Market attention is now on the Reserve Bank of New Zealand's (RBNZ) monetary policy decision, which will be announced on Wednesday. Most analysts expect the central bank to implement a 25 basis point rate hike, raising the Official Cash Rate (OCR) to 2.5%.
ING Bank describes this potential hike as a "safe" move but warns that it could be a one-off adjustment, limiting its positive impact on the NZD. "We believe the RBNZ will raise rates, but it will be an isolated measure. The market has largely priced in this move," the institution states.
"A rate hike could provide initial support for the kiwi, but markets are already pricing in around 3.5 hikes over the next 12 months, a scenario we consider overly optimistic," notes Commerzbank.
Rabobank shares this cautious view and warns that tightening expectations have become too aggressive. "A downward revision of those expectations could weigh on the currency in the coming months," they state. Meanwhile, BBH also expects a 25 basis point hike but argues that any strength of the NZD will be fleeting until markets know the central bank's future direction.
What to Expect for NZD/USD?
The NZD/USD pair remains under pressure, and analysts believe the RBNZ's decision will set the short-term direction. If the central bank meets expectations and raises rates, the kiwi could experience a slight rebound, but experts doubt it will be sustained. Conversely, if the RBNZ surprises with a pause or a more dovish tone than expected, the NZD could accelerate its losses.
For investors interested in the currency market, the key will be the statement following the decision and the economic projections accompanying the announcement. Any indication that the rate hike cycle could continue would boost the kiwi, while a cautious tone would weaken it further.
The current NZD/USD quote reflects market uncertainty. At 16:28 Spanish time, the pair was trading at 0.5685, with an intraday range between 0.5684 and 0.5701. Next Thursday, attention will turn to New Zealand's employment data, which could provide further clues about the health of the economy and the central bank's upcoming decisions.
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