The New Zealand Dollar (NZD) weakened against the US Dollar (USD) on Thursday, with the NZD/USD pair trading around 0.5880, down approximately 0.10% on the day. The pair remained under pressure as renewed demand for the US Dollar emerged amid rising geopolitical tensions in the Middle East, prompting investors to shift toward safer assets despite expectations for further policy tightening by the Reserve Bank of New Zealand (RBNZ).
Risk sentiment deteriorated after an Israeli airstrike in southern Lebanon increased uncertainty across the region, boosting demand for traditional safe-haven currencies. However, concerns over global energy supplies were partly eased by reports indicating that Iran and Oman are close to finalizing a temporary shipping arrangement through the Strait of Hormuz, reducing fears of prolonged disruptions to oil exports.
The US Dollar also found support from mixed US economic data. Initial Jobless Claims increased slightly to 199,000 from a revised 198,000 in the previous week but remained below the market expectation of 202,000, suggesting the labor market continues to show resilience despite signs of gradual cooling. Investors are now focusing on Friday’s highly anticipated Nonfarm Payrolls (NFP) report, which is expected to provide fresh insight into the health of the US economy and influence expectations for future Federal Reserve policy.
Meanwhile, markets have continued to reduce expectations for another Federal Reserve interest rate increase. According to the CME FedWatch Tool, the probability of a 25-basis-point rate hike in September has declined to 56.9%, down from 63.4% a week earlier, reflecting growing confidence that easing labor market conditions may encourage the Fed to adopt a more cautious policy approach.
On the domestic front, the New Zealand Dollar remained under pressure following mixed employment data. Although job creation and wage growth exceeded expectations during the second quarter, a sharp rise in labor force participation pushed the unemployment rate higher to 5.6%, its highest level since 2015, while the underutilization rate climbed to 13.8%, the highest reading in more than a decade. These figures indicate that labor market slack continues to persist despite improving economic activity.
Analysts at Brown Brothers Harriman (BBH) believe the softer labor market does not necessarily undermine the broader outlook for the Kiwi. They argue that above-target inflation, an improving domestic economy, and policy rates still below the RBNZ’s estimated neutral range support the case for additional tightening. Financial markets continue to fully price in a 25-basis-point RBNZ rate hike in September, with swaps implying nearly 100 basis points of cumulative tightening over the next year. TD Securities shares a similar view, stating that despite the mixed employment report, recovering economic activity leaves room for another rate increase.
Trade Idea:
Consider buying NZD/USD near 0.5865–0.5880, targeting 0.5930–0.5960, with a stop-loss below 0.5835, as RBNZ tightening expectations could provide medium-term support despite near-term US Dollar strength.