Forex News
- NZD/USD falls as a 1.0% drop in June's ANZ Commodity Price Index weakened the NZD.
- The NZD faces volatility as an evenly split NZIER shadow board creates deep uncertainty ahead of the July policy decision.
- The US Dollar advances as markets continue to price in multiple Fed rate hikes this year.
NZD/USD depreciates after two days of gains, trading around 0.5690 during the Asian hours on Monday. The pair loses ground as the New Zealand Dollar (NZD) weakens following the ANZ World Commodity Price Index, which fell 1.0% in June as easing Middle East tensions and lower oil prices weighed.
The New Zealand Dollar faces an immediate challenge as NZIER economists look past immediate disagreements to project higher interest rates over the coming year. While the shadow board is nearly evenly split on the upcoming July policy decision, creating genuine uncertainty and potential market volatility, its medium-term outlook remains unified. Regardless of the immediate decision, members firmly agree that the Official Cash Rate (OCR) must climb to a range of 3.00% to 3.25% over the next twelve months, establishing a solid anchor for interest rate expectations.
In line with this hawkish medium-term trajectory, ANZ anticipates the Reserve Bank of New Zealand (RBNZ) will raise the OCR by 25 basis points to 2.50% next Wednesday. Despite a sharp decline in global oil prices, ANZ maintains that persistent inflation risks and a weakened domestic currency warrant immediate action. They argue that delivering a neutral-to-dovish rate hike provides the RBNZ with the most comfortable tactical footing to navigate current economic pressures without overly roiling the markets.
The NZD/USD pair depreciates as the US Dollar (USD) rises, as traders expect multiple Federal Reserve (Fed) rate hikes later this year. This comes despite easing global inflation concerns, which have been helped by oil flows normalizing through the critical Strait of Hormuz.
The CME FedWatch tool shows financial markets are pricing in a 77.3% chance of interest rate hikes by year-end. Investors are now looking ahead to Wednesday's release of the Fed’s June policy Meeting Minutes to gain clearer insights into the future path of interest rates.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Speaking at the World Peace Forum in Beijing on Saturday, Iran’s ambassador to China, Abdolreza Rahmani Fazli, said that Tehran is considering introducing new service fees for ships passing through the Strait of Hormuz, while promising “special" treatment for countries that supported Iran during the recent conflict.
“As a country where the Hormuz is part of its territorial waters, we will definitely charge service fees," Fazli said, while quickly adding that the charges should not be viewed as a “toll."
Meanwhile, Iran’s Foreign Ministry noted that “clearance of mines in the Strait of Hormuz is regulated by a relevant memorandum of understanding (MoU), and Tehran sees no need for third-party intervention”.
US Vice President JD Vance said oil traffic through the Strait of Hormuz has returned to its pre-war levels.
Separately, regarding peace negotiations, the country’s Parliament Speaker Mohammad Bagher Ghalibaf said Tehran will not enter into talks with the US on a final agreement until every clause of the MoU is implemented, including an end to hostilities in Lebanon and the release of frozen Iranian funds.
Market reaction
Despite these headlines, WTI – the US oil benchmark - remains on the back foot near $69 at the start of the week.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- GBP/USD opens the new week on a subdued note amid a mixed fundamental backdrop.
- Hormuz risks offer support to the safe-haven USD, capping the upside for spot prices.
- Traders look to the UK Construction PMI and the US ISM Services PMI for a fresh impetus.
The GBP/USD pair struggles to capitalize on last week's strong move higher and oscillates in a narrow band, around the 1.3350 area during the Asian session on Monday. Moreover, spot prices remain below a technically significant 200-day Simple Moving Average (SMA), warranting caution before positioning for an extension of the recent recovery from the 1.3140 zone, or the year-to-date low touched in June.
The US Dollar (USD) kicks off the new week on a positive note amid renewed tensions over the critical Strait of Hormuz and turns out to be a key factor acting as a headwind for the GBP/USD pair. In fact, Iran’s ambassador to China said on Saturday that Tehran plans to introduce new service fees for ships passing through the strategically important waterway. His remarks come despite the US rejecting the idea of Iran charging vessels for using the strait. This keeps the geopolitical risk premium in play and benefits the Greenback's safe-haven status.
Meanwhile, traders trimmed their bets for interest rate hikes by the US Federal Reserve (Fed) in the wake of unimpressive US monthly employment details, released last Thursday, which pointed to softening labor conditions. Furthermore, easing inflation fears in the face of the recent slump in Crude Oil prices temper market expectations of higher-for-longer interest rates. The resultant shift in bets for zero and one Fed rate hike in 2026, from one to two rate increases, holds back USD bulls from placing aggressive bets and lends support to the GBP/USD pair.
The British Pound (GBP), on the other hand, benefits from commitment from Andy Burnham – the frontrunner to succeed Keir Starmer as UK Prime Minister – to adhere to strict borrowing rules. The GBP bulls, however, seem hesitant as mixed UK PMIs last week pointed to a significant economic slowdown, led by the dominant services sector. This could cap the GBP/USD pair as traders now look to the UK Construction PMI. Meanwhile, the US economic docket highlights the ISM Services PMI, which could provide some impetus later during the North American session.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- USD/JPY rises as the Japanese Yen falls amid high import costs.
- 10-year JGB yield reaches a fresh 30-year high of 2.79%.
- The US Dollar remains strong as markets price in multiple Fed rate hikes this year.
USD/JPY extends its gains for the second successive day, trading around 161.70 during the Asian hours on Monday. The Japanese Yen (JPY) is caught in a high-stakes tug-of-war, buckling under surging import costs even as 10-year JGB yields hit a fresh 30-year high of 2.79%. This deep market divide has traders on high alert for immediate verbal intervention from Tokyo.
The USD/JPY pair appreciates as the US Dollar (USD) holds its ground, buoyed by market expectations of multiple Federal Reserve (Fed) rate hikes later this year. This comes despite easing global inflation concerns, which have been helped by oil flows normalizing through the critical Strait of Hormuz.
The CME FedWatch tool shows financial markets are pricing in a 77.3% chance of interest rate hikes by year-end. Investors are now looking ahead to Wednesday's release of the Fed’s June policy Meeting Minutes to gain clearer insights into the future path of interest rates.
Recent US labor data have forced Wall Street to aggressively rethink this hawkish outlook. The latest Nonfarm Payrolls (NFP) report revealed the US economy added a mere 57,000 jobs last month, severely missing the market's forecast of 110,000. While the headline unemployment rate did manage an unexpected drop to 4.2% from May's 4.3%, the dramatic hiring slowdown strongly signals that the broader economy is cooling down.
Fed Chair Kevin Warsh firmly reaffirmed the central bank’s independent commitment to its 2% price stability target. Notably, he also acknowledged that inflation risks and expectations have finally begun to moderate over the past month.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
On Monday, the People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead at 6.8066 compared to Friday's fix of 6.8047 and 6.7850 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- EUR/USD consolidates during the Asian session as traders reassess Fed and ECB outlook.
- Hormuz risks offer some support to the safe-haven USD and cap the upside for spot prices.
- Traders look to second-tier Eurozone data and the US ISM Services PMI for some impetus.
The EUR/USD pair kicks off the new week on a subdued note and oscillates in a narrow band below mid-1.1400s during the Asian session. Spot prices, however, remain within striking distance of a nearly two-week high, touched last Thursday, amid mixed fundamental cues.
Despite a fragile US-Iran interim agreement, tensions surrounding the Strait of Hormuz remain elevated as Iran seeks to tighten control over the strategic waterway. This keeps the geopolitical risk premium in play and offers some support to the safe-haven US Dollar (USD), which, in turn, is seen acting as a headwind for the EUR/USD pair.
The USD bulls, however, seem hesitant amid reduced bets for interest rate hikes by the US Federal Reserve (Fed) following the release of rather unimpressive US jobs data last week. In fact, the closely-watched US Nonfarm Payrolls (NFP) report showed that the economy added only 57K new jobs in June, compared to the 110K expected.
Adding to this, the previous month's reading was revised down from 172K to 129K, while the Unemployment Rate edged lower to 4.2% in June. This comes on top of easing inflation fears in the face of the recent slump in Crude Oil prices and shifted market expectations from one to two Fed rate increases in 2026 to between zero and one hike.
This, along with a generally positive tone around the equity markets, keeps a lid on any meaningful appreciation for the USD and should limit the downside for the EUR/USD pair. Meanwhile, softer Eurozone inflation data forced investors to reduce bets on further European Central Bank (ECB) rate hikes, warranting caution for aggressive bulls.
Monday's economic docket features German Factory Orders, Eurozone Sentix Investor Confidence, the monthly Producer Price Index (PPI), and Retail Sales. Later during the early North American session, the release of the US ISM Services PMI, along with speeches from influential FOMC members, could provide some impetus to the EUR/USD pair.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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