• NZD/USD rises amid a softer US Dollar as hopes for US-Iran diplomacy improve risk sentiment.
• US and Iranian officials head to Islamabad, signaling a potential revival of talks.
• RBNZ rate hike expectations underpin NZD amid elevated inflation risks.

The New Zealand Dollar (NZD) gains traction against the US Dollar (USD) on Friday as the Greenback weakens amid renewed hopes for US–Iran talks after stalled negotiations. At the time of writing, NZD/USD is trading around 0.5880, up nearly 0.46% on the day and poised for a third consecutive weekly gain.

Market sentiment improves after reports that US President Donald Trump is sending envoys Steve Witkoff and Jared Kushner to Pakistan for talks with Iran, following earlier reports that Iran’s Foreign Minister Abbas Araghchi is also set to travel to Islamabad.

The developments signal fresh diplomatic efforts to revive talks, easing safe-haven demand for the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is easing from a one-week high near 98.94 to trade around 98.56, down about 0.27% on the day.

However, uncertainty remains as there are no clear signs of direct engagement yet, with Pakistan acting as a channel between the two sides, while the ongoing US naval blockade continues to be seen as a key obstacle to negotiations.

Despite some improvement in sentiment, tensions remain elevated, with the Strait of Hormuz still under a dual blockade, continuing to disrupt oil supplies. This is keeping a geopolitical risk premium embedded in Oil prices, fueling inflation concerns and reinforcing expectations of tighter monetary policy.

The Reserve Bank of New Zealand (RBNZ) remains on a tightening path, with domestic inflation already elevated and the surge in Oil prices adding to inflation risks. Markets expect the RBNZ to raise interest rates further at its May meeting.

In contrast, the Federal Reserve (Fed) is expected to delay rate cuts and keep interest rates on hold for longer, with markets fully pricing in a pause at next week’s meeting.

Looking ahead, traders will closely monitor US-Iran developments, as any setback in talks could lift the US Dollar and pressure NZD/USD in the near term, despite the RBNZ’s hawkish stance.