• The New Zealand Dollar weakens against the US Dollar as escalating military tensions between the US and Iran boost demand for safe-haven assets.
• Threats to energy supplies in the Middle East continue to fuel risk-off sentiment across financial markets.
• Expectations of further Reserve Bank of New Zealand rate hikes are helping to limit the Kiwi’s losses.

NZD/USD declines on Friday, trading around 0.5830 at the time of writing, down 0.19% on the day, as investors seek safe-haven assets following a fresh wave of US strikes against Iran. The US Dollar (USD) benefits from the renewed risk-off mood, while risk-sensitive currencies such as the New Zealand Dollar (NZD) remain under pressure.

The United States (US) has carried out a sixth consecutive day of strikes against Iranian infrastructure, including targets in the Bandar Abbas region. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) warned that it would intensify retaliation against Washington and countries hosting US military bases. The IRGC also claimed it had targeted the US Al Udeid Air Base in Qatar and threatened further action if US operations continue.

Concerns over potential disruptions to global energy supplies are also supporting demand for defensive assets. Iranian authorities reiterated that no Oil or Gas would pass through the Strait of Hormuz as long as US strikes continue, while officials also raised the possibility of disrupting other strategic energy shipping routes.

On the New Zealand side, the monetary policy outlook is providing some support for the Kiwi. Last week, the Reserve Bank of New Zealand (RBNZ) raised its Official Cash Rate by 25 basis points to 2.5% and indicated that further rate hikes could be required due to the risk of persistent inflation.

This stance was reinforced by comments from RBNZ Chief Economist Paul Conway, who said the Middle East conflict was complicating the monetary policy outlook by increasing inflation risks linked to supply shocks. According to Conway, recent developments have increased the upside risks to the central bank’s third-quarter inflation forecasts. Despite this fundamental support, the prevailing risk-off environment continues to favor the US Dollar in the near term.