NZD/USD is trading at 0.5680, down 0.50% for the day, weighed down by a 1% drop in the ANZ commodity price index for June and the divided opinions on the upcoming decision of the Reserve Bank of New Zealand.
The New Zealand dollar (NZD) remains under pressure against the US dollar (USD), trading at 0.5680, down 0.50% on this Monday. The kiwi is affected by the 1% decline in the ANZ commodity price index for June, which reflects the impact of easing tensions in the Middle East and falling oil prices on New Zealand's exports.
Uncertainty over RBNZ decision
Investors are now focusing on the upcoming monetary policy decision from the Reserve Bank of New Zealand (RBNZ), scheduled for next week. The shadow board of the New Zealand Institute of Economic Research (NZIER) is almost evenly split on the outcome of the July meeting, creating significant short-term uncertainty that could increase NZD volatility.
Despite these short-term differences, NZIER economists agree that the official cash rate (OCR) should rise to a range of 3% to 3.25% over the next twelve months. ANZ shares a similar view and expects the RBNZ to raise the OCR by 25 basis points to 2.5% next week. The bank believes that persistent inflation risks and the weakness of the domestic currency justify further policy tightening, despite the recent drop in oil prices.
According to ANZ, inflation risks and the weakness of the domestic currency justify further policy tightening.
BNY also maintains a hawkish outlook and expects the RBNZ to deliver a 25 basis point rate hike to 2.5%, supported by stronger GDP growth, a resilient labour market, and inflation remaining near the upper end of the central bank's target range. According to BNY, markets will primarily focus on the RBNZ's forward guidance and whether it maintains a hawkish bias, keeping expectations for the OCR to reach around 3% by early 2027.
US dollar strengthens
Meanwhile, the US dollar gains support as markets continue to price in multiple rate hikes from the Federal Reserve (Fed) by the end of the year. Investors are now awaiting the release on Wednesday of the minutes from the Fed's June meeting, as well as the Institute for Supply Management's (ISM) services purchasing managers' index (PMI), looking for new clues on the future trajectory of US monetary policy.
Comments from the Iranian ambassador in China regarding potential new transit tariffs through the Strait of Hormuz also contribute to a cautious market environment, favouring the greenback as a safe-haven asset. For investors interested in NZD/USD, the key will be the RBNZ's decision next week: a rate hike could provide relief for the kiwi, while a pause or a dovish tone could accelerate declines.
The NZD/USD cross remains at low levels, close to multi-year lows, and volatility could increase in the coming days. Traders should keep an eye on US macroeconomic data and statements from Fed members, which could influence the dollar's exchange rate.
You may also like
