NZD/USD recovers as USD retreats after two consecutive strong days

• NZD/USD recovers after two consecutive days of losses as the USD retreats.
• Geopolitical tensions in the Middle East continue to influence market sentiment and currency flows.
• Stronger-than-expected US private employment data fail to support the Greenback.

NZD/USD rebounds on Wednesday, gaining 0.45% to trade around 0.5920 at the time of writing, as the US Dollar (USD) weakens after two days of solid gains. The market mood shift is reflected in the US Dollar Index (DXY), which slips 0.25% to 98.80, while the S&P 500 Futures indicate a rebound at Wall Street, supporting higher-beta currencies such as the New Zealand Dollar (NZD).

The US Dollar loses some momentum as investors closely monitor escalating geopolitical tensions in the Middle East. The war has now entered its fifth day, with the United States (US) and Israel intensifying air and missile strikes against targets in Iran. Tehran has responded with missile and drone attacks against US bases and allied facilities across the Gulf region, keeping global markets on edge.

At the same time, reports from The New York Times indicate that Iran may have quietly signalled openness to indirect talks with the United States through backchannel intelligence communications involving the Central Intelligence Agency (CIA). However, officials in Washington remain skeptical about the possibility of near-term negotiations, suggesting that the military confrontation could continue to shape market sentiment.

On the macroeconomic front, US data offered mixed signals. The Automatic Data Processing (ADP) Employment Change report showed that US private sector payrolls increased by 63,000 in February, exceeding expectations of 50,000. Despite the positive surprise, hiring remains concentrated in a limited number of sectors, according to ADP Chief Economist Nela Richardson.

Comments from US Treasury Secretary Scott Bessent also attracted market attention. Bessent expressed confidence in the outlook for US job creation this year and emphasized that durable employment growth should be driven by the private sector. He also suggested that tariffs could temporarily rise to around 15% while ongoing trade reviews are conducted.

Looking ahead, traders are awaiting the release of the Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) later on Wednesday, while the Nonfarm Payrolls (NFP) report due on Friday remains the key event for assessing the health of the US labor market and the next moves from the Federal Reserve (Fed).