• The New Zealand Dollar attempts a rebound after hitting a two-week low
• Improved market sentiment supports cyclical currencies at the start of the week
• Geopolitical tensions and monetary policy uncertainty limit the scope of the recovery

NZD/USD trades around 0.5790 on Monday at the time of writing, up 0.60% on the day, after rebounding from the 0.5735 two-week low reached on Friday.

The modest improvement in risk appetite is lending some support to the New Zealand Dollar (NZD), a currency sensitive to global growth conditions, as Equity markets maintain a generally positive tone. The restrictive bias of the Reserve Bank of New Zealand (RBNZ) also continues to underpin the Kiwi. The central bank has indicated that the policy rate could remain at its current level for an extended period if economic developments evolve in line with expectations, limiting speculation about an early easing cycle.

However, the upside potential for NZD/USD remains constrained by shifting interest rate expectations. Despite stronger-than-expected Gross Domestic Product growth in the third quarter, markets have slightly scaled back the chance of a future rate hike, tempering enthusiasm for the New Zealand Dollar.

On the US side, demand for the US Dollar (USD) remains mixed. The US Dollar Index (DXY) is consolidating after its recent rebound, amid ongoing debate within the Federal Reserve (Fed) over the future direction of monetary policy. Several officials have emphasized the need to assess the impact of the rate cuts already delivered, while others warn of the risks of insufficient easing for the economy.

In addition, rising geopolitical tensions continue to support the Greenback through its safe-haven status, limiting gains in risk-sensitive currencies such as the New Zealand Dollar. Uncertainty surrounding international relations and regional conflicts is encouraging investors to remain cautious, especially as trading volumes stay relatively thin ahead of holiday periods.

Against this backdrop, NZD/USD manages to recover in the near term, but the lack of a clear catalyst and competing safe-haven flows suggest waiting for stronger signals before anticipating a sustained extension of the upside move.