NZD/USD returns above 0.6000 as the Iran-Israel truce boosts appetite for risk
- The New Zealand Dollar is surfing a relief rally, as geopolitical tensions ease.
- The US Dollar tumbles on risk appetite and dovish comments b¡y fed officials.
- The Focus today is on the Fed Chair Powell's testimony to Congress.
The risk-sensitive New Zealand Dollar is rallying more than 1% on Tuesday and about 2.5% from Monday’s lows as the announcement of a ceasefire in the Middle East has triggered a relief rally that sent the US Dollar tumbling.
US President Donald Trump thanked Tehran for the contained response to this weekend’s massive attack on some of its key nuclear sites, and announced a “complete and total” ceasefire in the Middle East war.
Iran’s Foreign Minister affirmed that Iran will stop its attacks if Israel ceases its airstrikes, while Tel Aviv affirmed that all their targets have been reached, which gives hope of a long-lasting truce.
Dovish Fedspeak is weighing on the USD
In the US, on Monday, Fed Vice Chair of Supervision, Michelle Bowman, suggested that the central bank might cut interest rates as early as July, as she said, Trump’s tariffs will likely have a smaller impact on inflation than feared.
views
These views echo the comments by Christopher Waller on Friday and have boosted expectations of a rate cut in July or, most likely, in September. Fed Chairman Powell will speak to Congress later today, and the market will be looking for any dovish hint that might add pressure on the US Dollar.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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