NZD/USD drops to fresh low since April vs bullish USD amid hawkish Fed, Iran uncertainty
- NZD/USD attracts sellers for the fourth straight day on Monday amid a broadly firmer USD.
- The Iran uncertainty and the hawkish Fed lift the USD back closer to an over one-year high.
- The PBOC rate decision and the RBNZ’s hawkish shift fail to lend any support to the Kiwi.
The NZD/USD pair drifts lower for the fourth consecutive day – also marking the sixth day of a negative move in the previous seven – and drops to its lowest level since April 8 during the first half of the European session on Monday. Spot prices currently trade around the 0.5725-0.5720 region and seem vulnerable to slide further amid the underlying bullish sentiment surrounding the US Dollar (USD).
The USD Index (DXY), which tracks the Greenback against a basket of currencies, catches fresh bids following Friday's pullback from its highest level since May 2025 and draws support from a combination of factors. The US Federal Reserve (Fed) signaled last week that it will need to raise the policy rate if inflation remains sticky. Traders were quick to react and ramped up their bets that the US central bank will deliver at least one 25-basis-point (bps) rate hike in 2026. This, along with geopolitical uncertainties, benefits the buck.
In the latest developments, Iran accused the US and Israel of violating the ceasefire and announced that it had again closed the Strait of Hormuz, citing the continued Israeli strikes in Lebanon. Adding to this, US President Donald Trump threatened fresh military action against Iran if Hezbollah continued attacks on Israel. This underscores the fragility of the diplomatic process and keeps the geopolitical risk premium in play, tempering investors' appetite for perceived riskier assets and driving safe-haven flows towards the Greenback.
This, to a larger extent, counters the Reserve Bank of New Zealand's (RBNZ) hawkish shift and suggests that the path of least resistance for the NZD/USD pair remains to the downside. In fact, the RBNZ indicated that the OCR could reach roughly 2.85% by the end of this year, implying up to three rate hikes. Meanwhile, the People’s Bank of China (PBOC) left the one-year and the five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively. The announcement, however, does little to lend any support to the currency pair.
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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