NZD/USD firms slightly near recent highs as mixed US data limits Dollar upside

• NZD/USD edges higher at the end of the week near recent highs.
• Tensions between the US and Iran continue to fuel demand for safe-haven assets.
• Mixed US economic data caps the upside potential of the US Dollar.

NZD/USD trades around 0.5915 on Friday at the time of writing, up 0.10% on the day, near recent highs around the 0.5930 area. The pair’s rebound comes as the US Dollar (USD) eases slightly, with the US Dollar Index (DXY) hovering near 97.90, down 0.23%, despite an ongoing tense geopolitical backdrop.

Tensions in the Middle East remain a key driver for markets. Statements from an Iranian official warning of retaliation in case of renewed US attacks have reinforced investor caution. However, reports suggesting that Iran has submitted a new proposal to the United States (US) through mediators have temporarily eased fears, weighing on the Greenback and supporting risk-sensitive currencies such as the New Zealand Dollar (NZD).

On the macroeconomic front, US data present a mixed picture. The Gross Domestic Product released by the Bureau of Economic Analysis (BEA) on Thursday showed the US economy expanding at an annualized rate of 2% in the first quarter, below expectations of 2.3%, which limits the US Dollar’s momentum. Meanwhile, the Manufacturing Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM) held steady at 52.7 in April, signaling moderate expansion in activity, albeit slightly below forecasts.

The Federal Reserve (Fed) kept interest rates unchanged within the 3.5%-3.75% range earlier this week, while noting that inflation remains elevated, partly due to rising energy prices. Diverging views within the committee and the possibility of further rate hikes in the event of an inflationary shock provide intermittent support to the US Dollar.