New Zealand Dollar weakens for third day as US-Iran tensions bolster Dollar

• The New Zealand Dollar posts a third consecutive daily decline against the US Dollar.
• Rising tensions between the US and Iran boost demand for safe-haven assets and support the Greenback.
• Strong Chinese data fail to prevent the New Zealand Dollar’s decline.

NZD/USD falls to around 0.5870 on Wednesday at the time of writing, down 0.97% on the day. The pair extends its bearish move for a third consecutive day as investors favor the US Dollar (USD) amid escalating geopolitical tensions in the Middle East.

Risk appetite remains fragile following the latest developments between the United States (US) and Iran. The US Central Command stated that Iran launched ballistic missiles toward Kuwait and Bahrain, while the US military carried out strikes on Iran’s Qeshm Island in response. In addition, several media outlets reported new attacks across the region, further increasing market concerns and strengthening demand for safe-haven assets.

These developments overshadow encouraging economic data from China. The country’s services sector activity expanded at its fastest pace in three months in May, with the Services Purchasing Managers Index (PMI) rising to 54.4 from 52.6 previously and significantly exceeding market expectations. However, the improvement in activity in the world’s second-largest economy provides only limited support to the New Zealand Dollar (NZD), which is often viewed as sensitive to China’s economic outlook.

On the US side, Wednesday’s data also supports the Greenback. The Automatic Data Processing (ADP) report showed that private sector employment increased by 122K jobs in May, up from a revised 105K previously and above market expectations of 117K. According to Nela Richardson, Chief Economist at ADP, hiring was more broad-based across industries, highlighting a labor market that continues to show solid momentum heading into the summer season.

At the same time, activity in the US services sector remains robust. The Institute for Supply Management (ISM) reported that its Services PMI rose to 54.5 in May from 53.6 in April, beating expectations of 53.8. The release underlines the resilience of the US economy despite some signs of moderation in the labor market.

Investors are also monitoring comments from US President Donald Trump, who said on Wednesday that Iran had agreed not to develop a nuclear weapon and that discussions with Iranian officials were ongoing. While these remarks offered some hope for de-escalation, markets remain cautious as the situation continues to evolve rapidly.

Attention now turns to upcoming US employment data, which could provide further clues about the monetary policy outlook of the Federal Reserve (Fed). For now, the combination of heightened geopolitical tensions and generally solid US economic data continues to support the US Dollar and weigh on NZD/USD.