New Zealand Dollar Holds Firm

The New Zealand dollar hovered around $0.593 after rising 1% in the previous session to a two-and-a-half-month high, as the US dollar tumbled and Treasury yields retreated from multi-year highs. The US Treasury announced plans to double its buybacks of longer-dated government debt, a move aimed at improving liquidity and stabilizing the bond market. The resulting decline in US yields helped ease pressure on risk-sensitive currencies despite ongoing uncertainty surrounding the Middle East conflict. Meanwhile, minutes from the Federal Reserve’s July meeting showed that policymakers remained concerned about persistent inflation, with several officials open to further interest-rate hikes. This could provide some support for the greenback and limit the kiwi's upside. Still, the kiwi remains supported by expectations of another rate hike from the Reserve Bank of New Zealand in September.

The New Zealand dollar fell to around $0.587, retreating from a two-and-a-half-month high, amid a risk-averse mood due to Middle East tensions and a broad selloff in equities. The memorandum of understanding signed by the US and Iran in June has expired without an extension as talks between the two sides faltered. New Zealand’s heavy reliance on imported oil also leaves the currency exposed to supply disruptions and higher energy costs. Sentiment was further dampened by another decline in AI and chip stocks amid elevated bond yields. Still, downside pressure on the New Zealand dollar was partly cushioned by expectations that the Reserve Bank of New Zealand will deliver another 25-basis-point rate hike next month, following repeated signals that monetary policy needs to become less accommodative. However, a string of weak economic data has raised doubts about how much further the RBNZ can tighten policy.

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.