Recently, the New Zealand dollar has been falling against the US dollar for four consecutive days, hitting a new low since November last year. The underlying logic behind this is actually quite worth noting.

First, let's talk about external factors. The escalation of tensions in the Middle East has triggered a global risk-off sentiment, making traditional safe-haven currencies like the US dollar, Japanese yen, and Swiss franc more attractive, while commodity currencies like the New Zealand dollar have suffered. This week, NZD/USD dropped from 0.6065 to 0.5850, a decline of nearly 3.5%. Trading volume also surged by 40%, indicating that institutions are significantly adjusting their positions.

But this isn't just a geopolitical issue. Domestic business confidence in New Zealand is also collapsing. ANZ's survey shows the confidence index has fallen to -42.3, hitting a new low since September 2022. Investment intentions, hiring plans, and profit expectations are all declining across the board. This suggests that businesses are very pessimistic about the future economy.

Interestingly, despite facing similar risk-off pressures, the Australian dollar only fell by 2.1%, and the Canadian dollar by 1.8%. Why is the New Zealand dollar dropping so sharply? Mainly because New Zealand's economy is small, and its financial markets are also limited, so capital withdraws more quickly during risk-off periods. Additionally, the country has high external debt levels, making it particularly sensitive to global financing conditions.

From an interest rate perspective, the Federal Reserve is more hawkish, with market expectations of about a 65% chance of rate hikes this year, while the Reserve Bank of New Zealand has only a 30% chance. This 125 basis point interest rate differential provides support for the US dollar.

The impact on New Zealand's economy is twofold. Exporters do benefit—they can convert foreign currency earnings into more local currency, and tourism also attracts more visitors due to the cheaper exchange rate. But importers suffer, as consumer goods imports account for 35% of total imports, and currency depreciation directly pushes up prices. Plus, the rising cost of foreign debt repayment adds pressure on both businesses and the government.

On the technical side, the 0.5850 level is a key support. If it breaks further, the next target could be 0.5750. Historically, after four days of consecutive declines, about 70% of the time the trend continues weaker, though the magnitude varies.

How long will this situation last? It depends on how the Middle East situation develops and next week's GDP data from New Zealand. As long as risk-off sentiment persists, the pressure on the New Zealand dollar will be hard to ease. Some traders are already watching whether the central bank might make verbal interventions, but direct market intervention seems unlikely—New Zealand's central bank usually prefers to let market forces speak.