NZD/USD weakens below 0.5850 as US-Iran talks remain uncertain
- NZD/USD softens to near 0.5830 in Wednesday’s Asian session.
- Trump said negotiations to end the Iran war are happening now.
- RBNZ’s Conway sees economic slack shaping response to oil shock.
The NZD/USD pair loses ground to around 0.5830 during the Asian trading hours on Wednesday. The pair edges lower as traders seek safety in the US Dollar (USD) amid the ongoing conflict in the Middle East.
US President Donald Trump appears to be determined to reach a deal with Iran aimed at ending hostilities in the Middle East. Iran indicated that it prefers to engage with US Vice President JD Vance in any renewed diplomatic talks, rather than special envoy Steve Witkoff or Jared Kushner, highlighting trust issues amid already fragile ceasefire talks.
An Israeli official stated that they viewed it as unlikely that Iran would agree to US demands in any new round of negotiations, which broke down on February 28 with the launch of the US-Israeli war on Iran. Signs of a prolonged conflict in the Middle East could boost the Greenback against the New Zealand Dollar (NZD), while hopes for a US-Iran ceasefire could undermine the USD.
Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway said that the central bank sees lingering slack in the economy that will shape how aggressively it responds to the inflationary aftershocks of higher oil prices.
Fitch Ratings on Friday cut the outlook on New Zealand's (NZ) Long-Term Foreign-Currency Issuer Default Rating (IDR) to negative from stable and affirmed the IDR at ‘AA+'. The statements said the Iran war poses risks to the country's economy, given its dependence on energy imports.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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