NZD/USD stayed firmer for a fourth day, trading near 0.5910 in Asian hours on Thursday. It held around 0.5900 as the US Dollar weakened amid lower demand for safe-haven assets after a US-Iran ceasefire extension.
US President Donald Trump said on Tuesday the US would extend the ceasefire with Iran at Pakistan’s request. The decision was linked to waiting for a unified proposal from Tehran, which reduced concern about renewed conflict that had pushed energy prices higher.
Tensions remained elevated because Iran kept control of the Strait of Hormuz, restricting passage and targeting vessels. Iranian parliament speaker and chief negotiator Mohammad Bagher Ghalibaf said reopening the strait would be “impossible” while the US and Israel continue ceasefire violations, including a US naval blockade.
In New Zealand, the Labour Party said it would support the India–New Zealand free trade deal. This gave National and ACT enough votes to pass it through Parliament.
Moody’s changed New Zealand’s outlook from stable to negative, citing global economic and political uncertainty. Fitch Ratings made a similar downgrade in March.
Looking back at the situation in 2025, we saw a brief relief rally in the NZD/USD towards 0.5900, driven by a temporary de-escalation between the US and Iran. This risk-on mood, however, was built on a fragile foundation, as ongoing tensions in the Strait of Hormuz capped any significant upward momentum. That underlying geopolitical risk never truly disappeared, reminding us how quickly sentiment can reverse.
Today, the interest rate differential provides a more solid base for the Kiwi, with the Reserve Bank of New Zealand’s Official Cash Rate at 5.0% against the US Federal Reserve’s 4.75%. While New Zealand’s Q1 inflation has eased to 3.5%, it remains above the RBNZ’s target, justifying its hawkish stance for now. This contrasts with the narrative in 2025, which was dominated by negative outlooks from ratings agencies like Moody’s and Fitch.
The persistent geopolitical uncertainty we observed last year highlights the value of owning volatility. Just as we saw implied volatility in currency pairs spike during the 2022 Ukraine conflict, any flare-up in global hotspots can easily overshadow domestic monetary policy. Purchasing long-dated NZD/USD straddles could be an effective strategy to profit from a significant price move, regardless of the direction.
Given New Zealand’s reliance on commodity exports, we must also watch for economic headwinds. Recent Global Dairy Trade auctions have shown a 2.5% decline in whole milk powder prices, which could pressure the NZD downwards. For those with existing long positions, buying put options with a strike price below the 0.6000 level offers a defined-risk way to hedge against a potential downturn.
The positive carry between the NZD and USD still presents an opportunity, but it requires careful risk management. Using options, such as a bull call spread, allows traders to take a moderately bullish position on the pair to capture potential upside. This strategy has the benefit of a capped, pre-defined maximum loss should the trade move against us.
