New Zealand Dollar Steadies

The New Zealand dollar steadied around $0.588, returning to near a two-month high as improving developments in Middle East diplomacy supported risk sentiment. Iran said it had reached an agreement with Oman on the geographic route for temporary shipping through the Strait of Hormuz and that they are finalizing a draft deal for jointly managing the waterway, easing oil market tensions. The kiwi had weakened in the previous session following a softer-than-expected jobs report, which reinforced the case that any further interest rate increases would likely be gradual rather than aggressive. However, markets continued to price in a quarter-point rate hike in September after the Reserve Bank of New Zealand indicated at its latest meeting that further tightening may be needed to reduce monetary stimulus and bring inflation under control.

The New Zealand dollar fell to around $0.586, retreating from a two-month high after a weaker-than-expected jobs report raised doubts about how high interest rates may rise this year. New Zealand's unemployment rate climbed to 5.6% in the second quarter, the highest level since the third quarter of 2015 and above the expected 5.4%, pointing to growing slack in the labor market. Although employment increased 0.5% from the previous quarter and outpaced forecasts of a 0.1% rise, the gain was partly offset by a sharp increase in the participation rate. Meanwhile, annual wage growth remained subdued at 2.0%, suggesting wage pressures are unlikely to fuel inflation and reducing the case for an aggressive tightening cycle. Still, markets continued to price in a September rate hike after the Reserve Bank of New Zealand signaled last month that further tightening would likely be needed to reduce monetary stimulus and keep inflation under control.

The New Zealand dollar rose to around $0.589, reaching a two-month high, as the latest wave of yen buying weighed broadly on the US dollar, while fresh negotiations in the Middle East supported risk sentiment. The greenback remained under pressure after Japan confirmed it had engaged in joint yen-buying intervention with the US. Meanwhile, President Donald Trump said on Monday that talks with Iran were underway after he canceled a weekend attack against the country, raising hopes for progress toward resolving the months-long conflict. Improving domestic sentiment, with New Zealand businesses and consumers becoming more optimistic, also underpinned the kiwi. Traders now await the country’s second-quarter jobs report for further clues on the state of the economy. Currently, markets are almost fully pricing in a quarter-point rate hike by the Reserve Bank of New Zealand in September.