• NZD/USD trades around 0.5830 on Monday, down about 0.16% on the day after opening with a bearish gap.
• The failure of talks between Washington and Tehran and the threat of a blockade of the Strait of Hormuz revive risk aversion.
• The surge in Oil prices fuels inflation fears and reinforces expectations of a restrictive stance from the Fed.

NZD/USD moves lower at the start of the week and trades around 0.5830 on Monday at the time of writing, down 0.15% on the day after the failure of negotiations between the United States (US) and Iran over the weekend.

High-level talks between Washington and Tehran ended without progress despite nearly 21 hours of intense discussions mediated by Pakistan. US Vice President JD Vance said that the United States had put its “best and final offer” on the table, which was rejected by Iran. In this context, US President Donald Trump said that the US Navy could begin blockading the Strait of Hormuz, jeopardizing a fragile two-week ceasefire and reigniting tensions in the Middle East.

This deterioration in the geopolitical environment weighs on global risk appetite and boosts demand for safe-haven assets, supporting the US Dollar (USD) and putting downward pressure on the NZD/USD pair. At the same time, the sharp rise in Oil prices is reviving global inflation concerns, reinforcing expectations that the Federal Reserve (Fed) could maintain a restrictive monetary policy stance for longer. Rising US Treasury yields are also helping to support the Greenback.

According to strategists at TD Securities, the outlook for US monetary policy will largely depend on developments surrounding Iran, recent inflation data and incoming activity indicators. The bank expects the Fed to keep rates on hold until September while assessing the impact of higher energy prices and geopolitical risks that could fuel stagflationary pressures.

On the New Zealand side, Reserve Bank of New Zealand (RBNZ) Governor Anna Breman said that the domestic economy could see stronger growth this year if the conflict in the Middle East is resolved quickly. She also noted that previous rate cuts are still providing support to the economy, while emphasizing that the duration of the conflict and the scale of supply disruptions remain highly uncertain.

Meanwhile, the Wall Street Journal reports that several regional countries are working to bring Washington and Tehran back to the negotiating table within the coming days. This prospect of renewed diplomacy is helping to cap the US Dollar’s upside and allows NZD/USD to recover slightly from its intraday lows, although the overall fundamental backdrop remains tilted in favor of bearish traders.