New Zealand Dollar climbs to highest since June as US Dollar weakens

• The New Zealand Dollar extends its advance for a third consecutive day and reaches its highest level since early June.
• Fading expectations of an immediate US rate hike weigh on the US Dollar, while prospects of monetary tightening in New Zealand support the Kiwi.
• Investors now await US PMI data, while tensions with Iran keep inflation risks and potential safe-haven demand in focus.

NZD/USD extends its advance on Friday and trades around 0.5980 at the time of writing, up 0.62% on the day. The pair reached its highest level since early June and is heading for a solid weekly performance, mainly supported by persistent weakness in the US Dollar (USD).

The US Dollar Index (DXY), which measures the Greenback's performance against a basket of six major currencies, loses 0.23% to 98.65 on Friday at the time of press. The US Dollar remains under pressure as investors scale back expectations of an immediate interest rate hike by the Federal Reserve (Fed).

The Minutes of the latest Federal Open Market Committee (FOMC) meeting nevertheless maintained a relatively hawkish tone. Policymakers indicated that further tightening could become necessary if progress on inflation remains insufficient. Markets therefore continue to consider a possible rate hike before the end of the year, particularly amid inflation risks stemming from higher Oil prices.

Meanwhile, the New Zealand Dollar (NZD) benefits from expectations of another interest rate hike by the Reserve Bank of New Zealand (RBNZ). The divergence between fading bets on immediate action from the Fed and prospects of monetary tightening in New Zealand therefore provides a supportive backdrop for NZD/USD.

New Zealand trade data released on Friday failed to derail this momentum. New Zealand records a monthly trade deficit of NZ$1,949M in July, but investors remain more focused on the monetary policy outlook and US Dollar dynamics.

Geopolitical risks could, however, limit the Greenback's decline. Tensions between the United States (US) and Iran over the Strait of Hormuz remain elevated, while higher energy prices fuel concerns about inflation. US President Donald Trump has notably threatened severe new sanctions against Iran and countries helping Tehran circumvent US restrictions. A further deterioration in the situation could revive demand for the safe-haven US Dollar.

Attention now turns to the preliminary S&P Global US Purchasing Managers Indices (PMIs) for August. Consensus forecasts point to a modest slowdown, with the Manufacturing PMI expected at 53.8, compared with 53.9 in July, and the Services PMI at 54, down from 54.6 previously. Weaker-than-expected figures could increase pressure on the US Dollar and continue to support NZD/USD, while an upside surprise could offer some relief to the Greenback.

Record short NZD bets clash with strong performance and El Nino tailwinds

Analysts at MUFG highlight that the weekly IMM positioning data, “tracked by many without necessarily throwing out a strong message,” is sending a clear signal for the New Zealand Dollar. The latest report, to the week ending 11 August, shows Leveraged Funds’ total short position in NZD has “hit a record in the series of the data going back to 2006,” a notable contrast to spot performance.

MUFG points out that “on a year-to-date basis NZD is actually the third best performing G10 currency after NOK and AUD.” The RBNZ policy rate “currently stand at 2.50% but the OIS curve implies expectations of nearly 100bps of tightening over the next 12mths,” yet in real terms policy remains accommodative. They note that “the actual inflation rate stands at 4.1% (Q/Q) although the monthly data shows slightly lower at 3.6%. Still, the real policy rate is more negative than across most of the rest of G10 and that could be encouraging this speculative selling.”

Against this backdrop, MUFG cautions that “while 100bps of tightening may prove excessive, the scale of short NZD positioning looks more extreme and we would argue at this level, the bar is relatively high for a notable leg lower for NZD.”

NZD/USD technical analysis

In the one-hour chart, NZD/USD trades at 0.5979, maintaining a bullish near-term tone as it holds above the 100-period and 200-period simple moving averages (SMAs) at 0.5917 and 0.5894 respectively. The pair is also trading over nearby horizontal support at 0.5960, while the Relative Strength Index (RSI) at around 72 sits in overbought territory, hinting that the latest advance could be losing some steam even as the broader uptrend remains supported.

On the downside, initial support is seen at 0.5960, followed by additional floors at 0.5940 and 0.5925, with the 100-period SMA at 0.5917 and the 200-period SMA at 0.5894 reinforcing the underlying bullish structure. On the topside, immediate resistance is located at the horizontal barrier near 0.5995, and a sustained break above this level would open the door for further gains, while failure to clear it might trigger a corrective pullback toward the cited support cluster.

(The technical analysis of this story was written with the help of an AI tool. Know more.)