New Zealand Dollar Slides as US Dollar Rebounds on Oil Price Rally

The New Zealand Dollar has declined as the US Dollar rebounds on safe-haven demand. The sharp rally in crude oil, driven by geopolitical tension between Iran and the United States, has pushed US Treasury yields higher. Analysts at Deutsche Bank note that this backdrop of higher oil prices and rate hike speculation has put sovereign bonds under pressure worldwide.

Cleveland Fed President Beth Hammack emphasized that the central bank will likely need to execute multiple rate hikes to get broad-based inflation under control. She highlighted the upcoming Consumer Price Index report as a pivotal test that will dictate the Fed's trajectory moving forward.

Rising oil prices have sparked fresh debate on how the Reserve Bank of New Zealand (RBNZ) might approach its September policy meeting, with markets exercising caution ahead of New Zealand’s third-quarter inflation expectation figures. New Zealand Prime Minister Christopher Luxon has called an urgent, in-person caucus meeting to confront growing speculation surrounding his leadership.

The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner, and bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. The RBNZ aims to achieve an inflation rate between 1% and 3% over the medium term.