NZD/USD steadies below 0.5900 as markets await developments in the Middle East

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The New Zealand Dollar (NZD) shows marginal losses against the US Dollar (USD) on Friday, trading around 0.5885 at the time of writing, after pulling back from monthly highs, around 0.5920 earlier this week.

NZD/USD reversal from 0.5920 remains contained above 0.5880 so far.
The pair holds recent gains amid market optimism about the resolution of Iran's conflict.
Fed officials are likely to provide further insights about the bank's stance later on Friday.

The market is at a standstill, with investors in a wait-and-see mode, awaiting the outcome of the peace talks between the US and Iran scheduled for the weekend.

Trump is optimistic about the end of the war

US President Donald Trump has been showing an euphoric tone after announcing a 10-day ceasefire between Israel and Lebanon that came into effect on Thursday. The US president also affirmed that he is very optimistic about sealing an agreement that will end the war in Iran.

News from Iran, however, is less inspiring. A report from Reuters, citing Iranian sources, affirms that negotiators from the US and Iran have scaled back their ambitions for a durable peace agreement and are now seeking a “temporary memorandum” to avoid further escalation of the conflict.

The calendar on Friday is thin, and all eyes will be on the speeches by San Francisco Federal Reserve (Fed) President, Mary Daly, and Governor Christopher Waller, who might shed some more light about the central bank’s next monetary policy steps. Futures markets are fully pricing that interest rates will remain steady at the April 30 meeting, according to the CME’s Fed Watch tool, while bets for further rate cuts this year have dropped to about 30% from above 60% one month ago as Iran’s war boosted inflationary pressures in March.

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.

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