Key Moments
- NZD/USD trades near 0.5870 in early European hours on Friday as the pair extends its decline.
- Persistent geopolitical uncertainty around US-Iran talks supports the US Dollar at the expense of the Kiwi.
- The RBNZ is expected to keep its policy rate at 2.25% next Wednesday, though some economists see potential hikes by end-September.
NZD Under Pressure as Safe-Haven Flows Support the Dollar
The New Zealand Dollar continues to weaken against the US Dollar in Friday’s early European session, with NZD/USD slipping toward 0.5870. Heightened geopolitical risks in the Middle East and uncertainty surrounding efforts to secure a US-Iran peace deal are helping underpin demand for the safe-haven US Dollar (USD), weighing on the New Zealand Dollar (NZD).
US-Iran Negotiations Face Sticking Points
Talks between the United States and Iran are ongoing, with both sides exchanging messages and draft texts in an attempt to shape a formal agreement aimed at ending the conflict. Despite Pakistan’s role in mediating the discussions, material hurdles remain.
Iranian officials stated on Friday that no agreement has yet been finalized with Washington, though they indicated that differences have narrowed. At the same time, the Islamic Republic’s Supreme Leader, Mojtaba Khamenei, highlighted that Iran’s uranium enrichment activities and Tehran’s control over the Strait of Hormuz remain key unresolved issues.
Fed Policy Outlook Supports the Greenback
Concerns that inflation in the United States remains stubborn are reinforcing expectations that the Federal Reserve (Fed) could keep interest rates elevated for longer or even enact additional increases. This backdrop continues to provide support for the Greenback and acts as a drag on NZD/USD.
Market pricing reflects a 41.9% probability that the Fed will deliver a 25 basis point (bps) rate hike by year-end, according to the CME FedWatch tool. This interest rate outlook is an important factor bolstering the US Dollar against higher-yielding and risk-sensitive currencies.
RBNZ Policy Expectations and New Zealand Outlook
On the domestic front, the Reserve Bank of New Zealand (RBNZ) is widely expected to keep its benchmark rate unchanged at 2.25% at its policy meeting next Wednesday. However, views on the path beyond that meeting are less uniform.
A narrow majority of economists surveyed in a Reuters poll now anticipate one or more rate hikes by the end of September. That shift in expectations comes as a global energy shock threatens to push inflation expectations higher in New Zealand, potentially forcing the central bank to tighten policy further.
Key Policy and Market Metrics
| Indicator / Event | Detail |
|---|---|
| NZD/USD level | Near 0.5870 in early European trade on Friday |
| RBNZ policy rate expectation | Hold at 2.25% at next Wednesday’s meeting |
| Fed rate hike probability | 41.9% chance of a 25 bps hike by year-end (CME FedWatch tool) |
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