The New Zealand Dollar (NZD) experienced significant selling pressure during the European session on Tuesday, trading 0.4% lower at around 0.5690 against the US Dollar. This decline was attributed to increased hawkish bets on the Federal Reserve (Fed), which have diminished the appeal of riskier assets such as the NZD. The US Dollar Index (DXY), which measures the Greenback's value against six major currencies, rose 0.2% to near 101.20, marking its highest level in over a year. Concurrently, S&P 500 futures fell by 1.36% to approximately 7,370, reflecting a risk-off sentiment in the market [1].
Currency performance data showed the US Dollar strengthening against most major currencies, with a 0.51% gain against the NZD and an 0.82% gain against the Australian Dollar. The CME FedWatch tool indicated that the probability of the Fed hiking interest rates this year has surged to nearly 87%, a sharp reversal from earlier expectations of two rate cuts prior to the onset of the Middle East war. This shift in sentiment is driven by rising headline and core US inflation, as well as improvements in labor market conditions [1].
Investors are closely watching the upcoming preliminary US S&P Global Purchasing Managers’ Index (PMI) data for June, scheduled for release at 13:45 GMT. Market expectations are for the US Services PMI to increase to 51.0 from 50.7 in May, while the Manufacturing PMI is anticipated to decline slightly to 54.7 from 55.1 [1].
On the New Zealand side, the Reserve Bank of New Zealand (RBNZ) is widely expected to raise its Official Cash Rate (OCR) by 25 basis points to 2.5% at its July policy meeting, according to Reuters. This expectation is supported by accelerating inflationary pressures in New Zealand [1].
CONCLUSION
The New Zealand Dollar's decline reflects heightened market expectations for a hawkish Fed, which has strengthened the US Dollar and triggered a broader risk-off sentiment. With key US PMI data and an anticipated RBNZ rate hike on the horizon, markets are likely to remain volatile as investors reassess monetary policy trajectories.