New Zealand Dollar Holds Advance

The New Zealand dollar hovered around $0.590 after reaching a two-and-a-half-month high, supported by a weaker US dollar. The greenback stayed under pressure as a series of soft US economic data prompted investors to reduce bets on a Federal Reserve rate hike in September. The kiwi also found support from expectations that the Reserve Bank of New Zealand will deliver another 25-basis-point rate hike next month, after repeatedly signalling the need to make monetary policy less accommodative. However, recent economic data have raised doubts about how much further the RBNZ can tighten policy. Meanwhile, investor sentiment remained cautious amid a lack of meaningful progress toward a peace deal in the Middle East, keeping demand for risk-sensitive currencies such as the kiwi in check.

The New Zealand dollar rose to $0.592, extending its rebound to reach its highest level since early June, as the US dollar declined further amid reduced expectations for a Federal Reserve rate hike. An unexpectedly weak US retail sales report led traders to further trim bets on the Fed raising interest rates next month, sending the greenback lower. The kiwi is also supported by expectations that the Reserve Bank of New Zealand will deliver another quarter-point rate increase next month after repeatedly stressing the need to withdraw some of its policy support. However, a string of weak economic data raised questions about how much further the RBNZ can continue tightening policy. Meanwhile, ongoing tensions in the Middle East are keeping investors cautious as new Israeli attacks on Tehran-backed Hezbollah in Lebanon, along with threats of additional US sanctions on Iran, clouded the prospects of an imminent peace deal.

The New Zealand dollar rose to $0.587, rebounding from a two-week low, as traders continued to price in an RBNZ rate hike next month. The central bank has repeatedly stressed the need to withdraw some of its policy support, keeping expectations for another rate increase firmly in place. However, soft economic data this week raised fresh questions over the extent to which the RBNZ may continue tightening policy. New Zealand’s manufacturing PMI fell to 54.3 in July from 60.1 in June, with a majority of business comments turning negative. This followed data showing that one-year inflation expectations fell to 2.6% in Q3 from 3.4% in Q2, while the two-year measure, which the RBNZ watches most closely, eased to 2.3% from 2.5%. This suggests that inflation expectations remain contained and that there is a lower risk of higher oil prices spilling over into broader inflation. Despite the rebound, the kiwi is down 0.3% this week, following two consecutive weeks of gains.