New Zealand Dollar: July Outlook

■ The New Zealand dollar fluctuates with the risk appetite driven by the Middle East situation, and is expected to have an autonomous rebound opportunity in July.  

■ In terms of price stability and economic recovery, it is forecasted that the New Zealand dollar will surpass the June high against both the US dollar and the Japanese yen in July. 

    Although some uncertainty remains regarding the ceasefire agreement between Israel and Iran, the market's risk sentiment has improved after President Trump supported the ceasefire. In the foreign exchange market, the trend of “buying US dollars caused by geopolitical events" has ended. After reaching a high of 99.421 on the 23rd, the US dollar index has declined again. During today’s Asian session, the index dropped to 97.456, its lowest since March 2022, indicating a weakening US dollar. 
 
   Turning to Oceania currencies, the New Zealand dollar reacts to the Middle East situation and fluctuates with market risk appetite. On the 23rd, it stopped declining near US$0.58 against the US dollar and 86 against the Japanese yen, then rebounded to US$0.60 and 87 respectively. While it is important to remain cautious about the worsening risk sentiment due to uncertainties around the Middle East and US tariff policies, current economic and price trends suggest a potential rebound for the New Zealand dollar in July. 
 
   Since August last year, the Reserve Bank of New Zealand (RBNZ) has cut interest rates in six consecutive meetings, lowering the policy rate from 5.50% to 3.25%. In the statement from the Monetary Policy Committee meeting on May 28, it was noted that "inflation is within the target range, and we are prepared to respond to domestic and international dynamics to maintain medium-term price stability." The consumer price index (CPI) rose by 2.5% year-on-year in the first quarter of 2024 and has stayed within the RBNZ’s target range of 1-3% for three consecutive quarters. Additionally, the real GDP growth in the first quarter of 2024, announced on June 19, increased by 0.8% month-on-month, up from the previous estimate of 0.7% and revised down from the initial 0.5%. Growth was driven by personal consumption and capital investment, exceeding the RBNZ's expectation of 0.4%. Although the expiration of US tariff hikes on July 9 introduces some uncertainty, New Zealand's flat 10% tariff rate is expected to limit the direct impact. At the upcoming Monetary Policy Committee meeting on July 9, the policy rate will likely remain unchanged. If market expectations for further rate cuts weaken, the New Zealand dollar could surpass the June high (US$0.6069, JPY88.01) and strengthen further ahead of the second-quarter CPI release on July 21.