New Zealand Dollar dips as stronger growth, risk optimism fail to offset hawkish Fed

• NZD/USD trades around 0.5765 on Thursday, edging lower despite stronger-than-expected annual growth data from New Zealand.
• Improved risk sentiment following the preliminary agreement between Washington and Tehran reduces demand for safe-haven assets.
• The Federal Reserve keeps rates unchanged but reinforces expectations of additional monetary tightening later this year.

NZD/USD trades around 0.5765 at the time of writing on Thursday, down a modest 0.07% on the day. The pair struggles to extend its rebound despite solid economic data from New Zealand, while the US Dollar (USD) continues to draw support from the Federal Reserve’s (Fed) more hawkish stance.

Data released by Statistics New Zealand showed that Gross Domestic Product (GDP) expanded by 0.8% QoQ in the first quarter, following an upwardly revised 0.5% increase in the previous quarter. Although the quarterly reading came in slightly below market expectations of 0.9%, annual growth reached 1.5%, beating the 1.1% consensus forecast and confirming a gradual improvement in New Zealand’s economic activity.

The New Zealand Dollar (NZD) also finds support from improving market sentiment after news of a preliminary agreement between the United States (US) and Iran. According to reports cited by the BBC, the White House confirmed that US President Donald Trump and Iranian President Masoud Pezeshkian signed a memorandum of understanding aimed at ending the conflict involving the United States, Israel and Iran. The agreement also includes the gradual reopening of the Strait of Hormuz, easing geopolitical concerns that had recently supported safe-haven demand.

However, gains in the Kiwi remain limited against a US Dollar that continues to benefit from strong fundamental support. The Fed left its benchmark interest rate unchanged within the 3.5%-3.75% range on Wednesday, in line with expectations. However, the central bank’s updated economic projections showed that roughly half of Federal Open Market Committee (FOMC) members expect at least one additional rate hike this year.

Fed Chair Kevin Warsh adopted a distinctly hawkish tone during his first press conference as head of the central bank. He reaffirmed the institution’s commitment to restoring price stability, while policymakers continue to highlight the resilience of the labor market and the persistence of underlying inflation pressures.

Markets quickly adjusted their expectations following the meeting. Futures markets are now pricing in a strong chance of a 25-basis-point rate hike before year-end, a scenario that supports US Treasury yields and helps limit the upside potential of NZD/USD in the near term.