The NZD weakened significantly against the US dollar this week

The NZD weakened significantly against the US dollar this week.

Key Points for the New Zealand Dollar (NZD) This Week (June 16-21)

I. Weekly Market Overview

The NZD weakened significantly against the US dollar, hitting a low of 0.573 during the week, a two-month low, with a weekly decline exceeding 1%. It rebounded slightly during the session, fluctuating within the 0.578-0.579 range, but overall, the bears were in control.

Trend Logic: A stronger US dollar > support from New Zealand’s interest rate hike expectations; fluctuating risk appetite dragged down the risk currency, the NZD.

II. Key Supporting Factors for the New Zealand Dollar

Pricing of a Rate Hike by the Reserve Bank of New Zealand Continues to Rise

The Reserve Bank of New Zealand released hawkish signals in May, and the market is pricing in a 25bp rate hike in July with a probability exceeding 85%, with two rate hikes expected for the year (previously three). Inflation in the first quarter was 3.1%, higher than the 2% target. Rising oil prices in the Middle East exacerbated imported inflation, forcing the central bank to tighten, and the medium- to long-term interest rate differential supported the NZD.

Q1 GDP data exceeded expectations

Q1 GDP grew 0.8% quarter-on-quarter and 1.5% year-on-year, higher than the market expectation of 1.1%; strong retail sales and sustained domestic demand alleviated recession concerns and limited the potential for a deep decline.

Commodity fundamentals provided support

Dairy product export prices remained stable; Middle East conflict boosted crude oil prices, indirectly benefiting New Zealand’s energy-related exports; Chinese demand did not weaken significantly, and there were no major negative impacts on trade fundamentals.

III. Key negative factors suppressing the New Zealand dollar (dominant this week)

Hawkish expectations from the Fed pushed up the US dollar index
Resilient US inflation and employment data led the market to postpone expectations of interest rate cuts, resulting in rising US Treasury yields, a widening US-New Zealand interest rate differential, and capital outflows from New Zealand dollar assets, which was the main reason for this week’s decline.

Global risk aversion sentiment fluctuated repeatedly
The Middle East situation was tense and easing, and stock markets were volatile. As a typical risk commodity currency, the New Zealand dollar saw safe-haven selling; geopolitical conflicts suppressed global risk appetite, and this is unlikely to reverse in the short term.

The AZD/AUD interest rate differential continues to weigh on the NZD/AUD pair. The Reserve Bank of Australia (RBA) has completed multiple rounds of interest rate hikes, resulting in higher Australian dollar yields. The NZD/AUD pair remains near a 13-year low, with weakening cross-currency pairs diverting buying interest from the New Zealand dollar.

Domestic growth concerns: The central bank predicts near-zero or even contracting GDP growth in the second quarter; weak real estate and consumer confidence suggest that further interest rate hikes could further suppress domestic demand, limiting the central bank’s room for significant tightening.

IV. Key Technical Levels (NZD/USD)

Support: First support at 0.573 (this week’s low), strong support at the psychological level of 0.570;
Resistance: 0.580, 0.585 (previous support turned resistance);
Pattern: Broke below the short-term upward trend line, MACD is in bearish territory, indicating short-term weakness. A significant recovery is only expected if there is a substantial improvement in risk conditions.

V. Key Variables to Watch Next Week

US PCE inflation, initial jobless claims (determines the strength of the US dollar); New Zealand manufacturing sentiment, forward-looking price data; Middle East conflict, global stock market risk sentiment; dairy auction prices, RBA official speeches (affecting cross-currency pairs).

VI. Short-Term Conclusion (This Week’s Summary)

Short-term outlook: The US dollar and US Treasury yields are the main downward pressure; central bank interest rate hike expectations only provide a buffer and are unlikely to reverse the downward trend. A strengthening trend is only possible if two conditions are met: a significant cooling of US inflation and a substantial easing of tensions in the Middle East.