NZD is supported by a hawkish RBNZ and improved risk sentiment, but remains sensitive to global factors like China data and USD moves. As long as sentiment holds, NZD/USD has upside. USD stays soft despite strong data, with trade hopes lifting short-term sentiment, but long-term risks keep the outlook weak to neutral.

NZD: Hawkish RBNZ and positive risk sentiment

The recent hawkish rate cut from the RBNZ has surprised the markets. While the market had been looking for the interest rates to head into stimulatory territory in the coming year, the RBNZ has the rate reaching its estimated long-run neutral rate of around 2.90% by year-end. This has pushed the projected interest rate path considerably higher. Currently, the markets assign a 60% probability to a 25‐bps rate cut and a 40% probability to holding rates steady by the RBNZ at its July 8th meeting. The interest rate path is slightly lower compared to last week, and the markets are pricing in 17‐bps of rate cuts over the next five meetings.

Despite some improvement in the risk sentiment by last week, the global risk sentiment remains fragile, and the ongoing trade war, along with recent weak PMI’s from China, continues to weigh on market sentiment. For now, the outlook for the NZD is driven more by global risk sentiment than by domestic factors. As long as risk sentiment remains positive, could expect the NZD to perform well.

Looking ahead, New Zealand’s lack of fresh domestic data or central-bank guidance means its currency will remain at the mercy of global growth signals, China’s industrial health, and U.S. monetary developments. Without significant local drivers, the NZD’s fortunes are likely to continue tracking rapid shifts in risk sentiment and the U.S. dollar’s volatility.

NZD/USD 4H

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