NZD/USD remains on the defensive below 0.5700 on Middle East tensions

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The NZD/USD pair remains on the defensive near 0.5695 during the Asian trading hours on Monday. The US Dollar (USD) strengthens against the Kiwi as traders weigh developments in the Middle East. The Reserve Bank of New Zealand (RBNZ) policy meeting will be in the spotlight later on Wednesday.

NZD/USD posts modest losses around 0.5695 in Monday’s Asian session.
Trump threatened that Iran would be “living in Hell” if it didn’t open the Strait of Hormuz.
RBNZ is widely expected to keep the OCR on hold at 2.25% at its April meeting on Wednesday.

US President Donald Trump set a Tuesday deadline for Iran to reopen the Strait of Hormuz, threatening to hit the country’s power plants and bridges if it does not comply. Iran's foreign ministry spokesperson said that Tehran will reciprocate attacks on its infrastructure and target similar infrastructure owned by the US or related. Lingering geopolitical uncertainty in the Middle East could boost a safe-haven asset such as the Greenback and act as a headwind for the pair in the near term.

The RBNZ will announce its interest rate decision on Wednesday. Markets widely expect the Official Cash Rate (OCR) to remain steady at 2.25%. RBNZ Governor Anna Breman indicated the bank might "look through" temporary energy-driven inflation but could hike if long-term expectations are threatened.

While a rate hold is anticipated, Westpac analysts suggested the central bank may signal future hikes if energy-driven inflation becomes persistent. Markets have priced in nearly a 40% probability of a rate hike by September 2026, with a full 25 basis points (bps) move fully priced in by December.

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.