New Zealand Dollar edges lower on US-Iran tensions as RBNZ hike expectations curb losses

NZD/USD retreats on Tuesday and trades around 0.5880 at the time of writing, down 0.38% on the day. The New Zealand Dollar (NZD) remains under pressure as mounting geopolitical tensions between the United States (US) and Iran fuel risk aversion and support demand for the US Dollar (USD).

US President Donald Trump says he is not interested in renewing the expiring agreement with Iran. He notably points to the naval blockade of Iranian ports as a means of leverage and reiterates his intention to place the strategic waterway under US control. These comments heighten concerns about a further escalation in tensions between Washington and Tehran.

The deterioration in market sentiment weighs on the New Zealand Dollar, which is generally sensitive to changes in risk appetite, while the Greenback benefits from safe-haven flows.

However, the US Dollar’s advance could remain limited by fading expectations of monetary tightening from the Federal Reserve (Fed). The unexpected weakness in July US Nonfarm Payrolls (NFP) and moderate consumer inflation figures weaken the case for an imminent interest rate hike.

According to the CME FedWatch tool, markets now price in a 35% chance of a rate hike at the Fed’s next meeting, down from 47% a month earlier. The decline in these expectations could curb demand for the US Dollar and limit downside pressure on NZD/USD.

Looking ahead, investors await the Federal Open Market Committee (FOMC) Minutes, due on Wednesday, which could provide further clues about the Fed’s monetary policy outlook and trigger volatility in the US Dollar.

On the New Zealand side, the Kiwi also draws support from expectations that the Reserve Bank of New Zealand (RBNZ) could raise its policy rate by 25 basis points at next month’s meeting. Repeated signals that monetary policy needs to become less accommodative reinforce this outlook and could provide a floor for the New Zealand Dollar in the near term.

NZD supported by foreign inflows as banks question scope for further RBNZ hikes

Analysts at BNY Mellon point to strong offshore demand for New Zealand government debt, noting that “foreign investors held 58.9% of government bonds in July 2026, up from 57.7% in June.” In nominal terms, “nonresident holdings rose to NZ$122.47bn from NZ$115.53bn, while non-resident repo holdings edged down to NZ$11.02bn from NZ$11.09bn.” BNY adds that “the NZD itself is now trading slightly above the rolling 12-month average,” but stresses that it “continue[s] to doubt the current market pricing of interest rates expectations, where two more Reserve Bank of New Zealand (RBNZ) hikes are expected by year end.” While “domestic activity remains robust,” the bank argues that “inflation expectations remain relatively well-anchored” and that “nontradables inflation is relatively stable,” so “if the RBNZ looks past headline price risks, the domestic case for tightening softens considerably.”

Commerzbank takes a similar view ahead of the next policy decision, observing that “in about two weeks, the Reserve Bank of New Zealand will hold its next monetary policy meeting, and based on the inflation indicators released this morning, it seems unlikely that it will raise interest rates for a second consecutive time following the July hike.” The bank highlights that, although “full inflation figures are released only once a quarter in New Zealand, Stats NZ publishes a Selected Price Index every month for about half of all prices, which typically reflects the trend in the full inflation figures very well.” This monthly gauge “fell to 3.5% year-over-year in July, down from 4.9% in June,” and “if we exclude the sharp rise in gasoline and diesel prices, the rate was actually only 2.2% in July, down from 2.8% in June.” Commerzbank notes that “global prices for oil and petroleum products were lower in July than in August,” and that “due to the collapse of the ceasefire and the renewed blockade in the Strait of Hormuz, a slight uptick in August is certainly to be expected,” but concludes that “the decline in the core rate in particular should be a source of satisfaction for the central bank.”

On activity, Commerzbank points to “positive figures for monthly aggregate credit and debit card sales” as “reason to be confident that the economy will not suffer too severe a setback.” After core card sales “had slowed sharply in June and were up only 0.4% year-over-year, they rose again by 3.5% in July,” with “the overall rate also improved again, rising from 1.3% in the previous month to 3.5%.” The bank cautions, however, that “these are nominal figures,” and that “when monthly inflation is factored in as an indicator, this shows that, in real terms, retail sales are still merely stagnating.”