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New Zealand Dollar slumps to near 0.5950 as Middle East conflict boosts US Dollar

  • NZD/USD falls to around 0.5955 in Monday’s early Asian session. 
  • Fears of a prolonged Middle East conflict boost the safe-haven flows. 
  • RBNZ’s Breman hinted at a potential rate hike late in 2026.  

The NZD/USD pair tumbles to near 0.5955 during the early Asian session on Monday, pressured by a stronger US Dollar (USD). Escalating tensions in the Middle East weigh on the riskier assets, such as the Kiwi. Traders will closely monitor the developments surrounding the US-Iran tensions. The US ISM Manufacturing Purchasing Managers Index (PMI) report for February is due later on Monday. 

The US and Israel began the attack earlier Saturday with the aim of “eliminating imminent threats from the Iranian regime,” US President Donald Trump said over the weekend. Saudi Arabia, Qatar, the United Arab Emirates, Kuwait and Bahrain, all of which host US troops, reported Iranian attacks, most of which they seemed to repel. 

CNBC reported that Iranian Supreme Leader Ayatollah Ali Khamenei has been killed after the US and Israel launched a "massive" and ongoing attack against Iran's leadership and military. This headline raises fears of a wider and prolonged war in the Middle East, which lifts a safe-haven currency such as the Greenback. 

On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) decided to hold the Official Cash Rate (OCR) at its February policy meeting. During the press conference, RBNZ's new Governor Anna Breman signaled an accommodative stance, pushing expectations for the first potential rate hike to late 2026. A dovish hold by the New Zealand central bank might cap the upside for the New Zealand Dollar (NZD) against the US Dollar. 

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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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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