NZD/USD hits six-week high on inflation data

Today’s headlines

What’s happening: The New Zealand dollar recorded gains against the US dollar this morning following the release of inflation data.

What happened: Data released by New Zealand this morning showed higher-than-expected inflation, sparking speculations of another rate hike.

The NZD/USD rose despite safe-haven demand supporting the greenback amid the US-Iran tensions.

Why it matters: Annual inflation in New Zealand accelerated to 4.1% in the second quarter from 3.1% in the prior quarter. The latest reading exceeded both market estimates of 4% and the Reserve Bank of New Zealand’s projection of 3.9%.

This was the highest reading since the fourth quarter of 2023, keeping inflation significantly above the central bank’s 1%-3% target range.

On a quarterly basis, New Zealand’s CPI surged 1.5%, accelerating from the previous quarter’s 0.9%. This, too, came in higher than market expectations of 1.4%.

Investors widely expect the Reserve Bank of New Zealand to hike its benchmark interest rate by the end of the year, with another increase expected in February 2027. Earlier this month, the RBNZ had raised its official cash rate for the first time in more than three years, while warning that further tightening may be needed to return inflation to the target range.

The hawkish monetary policy forecast from the central bank continued to provide support to the New Zealand dollar, helping it to record gains versus its major peers despite weakness in the overall market sentiment due to the US-Iran conflict.

The US continued to attack Iran for the 10th consecutive day, while Tehran launched retaliatory attacks on neighbouring regions. Iran said proposals had been presented by negotiators to help ease the recent tensions.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, hovered around 101.78 this morning.

The NZD/USD forex pair rose around 0.6% to 0.5872 this morning, reaching more than six-week highs. Meanwhile, the S&P/NZX 50 Index declined 0.4% to trade at 13,640.64.

What to watch: Investors will keep an eye on escalating tensions between the US and Iran.

Data on ANZ business confidence and ANZ Roy Morgan consumer confidence will be released this week. New Zealand’s ANZ business outlook index, which jumped to 36.6 in June from 10.0 in the previous month, is expected to decline slightly to 36 in July. Analysts expect the ANZ-Roy Morgan consumer confidence to fall to 90.5 in July from 91.3 in June.

The markets today

Japan’s stocks in focus today ahead of balance of trade data

Context: Equity markets in Japan traded sharply higher this morning in the post-holiday trading session.

Details: Equity markets in Japan remained closed on Monday due to Marine Day (Umi no Hi) national holiday. Japanese stocks recovered some of the losses recorded last week, as investors returned with more optimism from a long-holiday weekend.

Tech stocks were among the top performers this morning, after last week’s steep decline that mirrored the broader selloff in semiconductor and AI stocks. Shares of Kioxia Holdings, Advantest and Ibiden were among the top tech gainers this morning.

Financial and consumer-related shares also recorded gains, with Mitsubishi UFJ and Fast Retailing moving higher.

Markets recovered with investors buying the tip, even as rising crude oil prices reignited inflationary concerns and prospects of interest rate hikes.

Japan’s Nikkei 225 jumped 1.8% to trade at 65,295.13 this morning, while TOPIX climbed around 1.9% to trade at 3,992.75.

What to watch: Investors will continue monitoring the latest developments at the Strait of Hormuz as almost 80% of crude oil imported by Japan passes through this waterway.

Data on balance of trade (0350 UAE Time) from Japan will be released on Wednesday. Japan’s trade deficit, which shrank to ¥378.7 billion in May from ¥662.5 billion in the year-ago period, is expected to narrow further to ¥120 billion in June. Analysts expect Japan’s exports to jump by 18.6% year-over-year in June following a 17.0% gain in May, while imports are projected to surge by 21% year-over-year in June compared to a 12.5% gain in the previous month.

Other Markets: European indices closed mixed on Monday, with the FTSE 100 and STOXX Europe 600 Index down by 0.71% and 0.30%, respectively, and the DAX 40 and CAC 40 up by 0.06% and 0.02%, respectively.

The news shaping the markets

Russia attacked a ship near the southern port city of Odesa in Ukraine. The news sent the USD/RUB pair lower in forex trading this morning.

The US announced plans to impose a 50% tariff on imports from Canada beginning in 30 days, which lent support to the USD/CAD forex pair.

India’s infrastructure output grew 5.0% year-over-year in June, versus a 3.2% gain in the previous month. However, supply concerns from Persian Gulf energy exports lowered the output for refinery products, which sent the USD/INR pair higher in forex trading this morning.

China’s urban youth unemployment rate declined for the third straight month to 14.9% in June. This being the lowest reading in a year exerted pressure on the USD/CNY forex pair.

Argentina’s trade surplus widened to $2.19 billion in June from $0.88 billion in the year-ago period. However, the USD/ARS pair gained in forex trading this morning.

What else to watch today

Spain’s balance of trade (1200 UAE Time), Eurozone’s ZEW economic sentiment index (1300 UAE Time), Germany’s ZEW economic sentiment index (1300 UAE Time) and ZEW current conditions (1300 UAE Time), Mexico’s retail sales (1600 UAE Time), as well as US ADP employment change weekly (1615 UAE Time) and Redbook index (1655 UAE Time).