New Zealand Dollar remains depressed as USD benefits from Iran risks and hawkish Fed

NZD/USD edges lower as geopolitical risks and hawkish Fed bets help revive the USD demand.
The better-than-expected official PMIs from China fail to provide any impetus to antipodeans.
The lack of follow-through selling warrants caution before placing fresh bearish bets on the pair.

Haresh Menghani FXStreet

The NZD/USD pair attracts some sellers during the Asian session on Tuesday, though it lacks bearish conviction and remains confined in a familiar range held over the past week or so. Spot prices move little following the release of China's official PMIs and currently trade just below mid-0.5600s, down 0.05% for the day.

An official survey published by the National Bureau of Statistics (NBS) showed that business activity in China's manufacturing sector grew slightly above expectations in June. In fact, the official Manufacturing PMI rose from the 50.0 seen in May to 50.3, slightly above expectations of 50.1. Adding to this, the gauge for the non-manufacturing sector improved to 50.2 in June vs 50.1 in the previous month and forecast for a 49.9 print. The data, however, indicated that business activity barely remained in expansion territory on the back of sluggish domestic demand and weak consumer spending. This, in turn, fails to provide any impetus to antipodean currencies, including the New Zealand Dollar (NZD) and the NZD/USD pair.

The US Dollar (USD), on the other hand, draws some support from persistent geopolitical uncertainties and mixed signals on US-Iran talks. US President Donald Trump wrote on Truth Social that Iran had requested a meeting, and it will take place in Qatar's capital, Doha, on Tuesday. However, Deputy Iranian Foreign Minister Kazem Gharibabadi denied that there were plans for technical talks this week. Furthermore, fresh Israeli strikes on Lebanon keep geopolitical risk premiums in play, which, along with hawkish US Federal Reserve (Fed) bets, underpins the safe-haven USD and weighs on the NZD/USD pair.

According to the CME Group's FedWatch Tool, traders are still pricing in around 63% chance that the US central bank will raise borrowing costs in September and assigning over an 80% probability of a move by the end of this year. Adding to this, renewed US-Iran hostilities sparked inflationary fears, which, in turn, favor the USD bulls. However, the NZD/USD pair, so far, has held above its lowest level since November 2025, touched last week, warranting some caution before positioning for any further depreciating move.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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