NZD/USD weakens below 0.5850 as Middle East tensions rise, Fitch downgrades NZ outlook
- NZD/USD softens to around 0.5830 in Monday’s early Asian session.
- Iran said it will completely close the Strait of Hormuz if the US bombs power plants.
- Fitch cut New Zealand’s outlook to negative.
The NZD/USD pair loses ground to near 0.5830 during the early Asian session on Monday. Heightened geopolitical tensions in the Middle East boost safe-haven currencies such as the US Dollar (USD) against the Kiwi.
The Iranian military said on Monday that it will completely shut the strait if US President Donald Trump proceeds with his threats to target Iranian energy facilities, per the Guardian. This statement came as Trump gave Iran 48 hours to reopen the Strait of Hormuz to shipping or face the destruction of its energy infrastructure.
Fitch Ratings on Friday cut the outlook on New Zealand's (NZ) Long-Term Foreign-Currency Issuer Default Rating (IDR) to negative from stable and affirmed the IDR at ‘AA+'. The statements said the Iran war poses risks to the country's economy, given its dependence on energy imports.
A hawkish tone from the Reserve Bank of New Zealand (RBNZ) might cap the downside for the New Zealand Dollar (NZD). Traders are now pricing in nearly a 50% chance of a rate hike as early as May 2026, according to Reuters.
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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