NZD/USD eyes 0.5900 on softer USD; bulls seem cautious as US-Iran tensions persist

NZD/USD turns positive for the second straight day on Monday amid a modest USD downtick.
Stalled US-Iran peace talks, Hormuz risks, and hawkish Fed bets could limit further USD losses.
Traders might also opt to move to the sidelines ahead of the FOMC policy meeting this week.

Haresh Menghani FXStreet

The NZD/USD pair attracts some dip-buyers at the start of a new week and builds on Friday's bounce from the 200-day Simple Moving Average (SMA) support near the 0.5840 area. Spot prices climb back closer to the 0.5900 mark during the Asian session amid a modest US Dollar (USD) downtick, though the upside seems capped on the back of geopolitical uncertainties.

A generally positive tone around the equity markets is seen undermining the safe-haven Greenback and turning out to be a key factor offering some support to the NZD/USD pair for the second consecutive day. Any meaningful USD depreciation, however, seems elusive in the wake of stalled US-Iran peace talks. In fact, US President Donald Trump cancelled envoys Steve Witkoff and Jared Kushner's trip to Pakistan aimed at advancing Iran war negotiations.

Meanwhile, Israeli Prime Minister Benjamin Netanyahu said he has ordered the military to vigorously attack Hezbollah targets in Lebanon. This comes on top of the US-Iran standoff over the Strait of Hormuz and continued supply disruption through the Strait of Hormuz, which revives inflationary concerns and hawkish US Federal Reserve (Fed) expectations. This, in turn, should limit deeper USD losses and keep a lid on further gains for the NZD/USD pair.

Traders might also opt to wait for the outcome of a two-day FOMC meeting on Wednesday, which will influence the USD price dynamics and provide a fresh impetus. In the meantime, bets that the Reserve Bank of New Zealand (RBNZ) may maintain a cautious policy stance or consider tightening to bring inflation back to the 2% midpoint amid persistent sticky inflation might hold back bearish traders from placing aggressive bets around the NZD/USD pair.

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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