NZD/USD traded near 0.5885 on Friday after retreating from monthly highs around 0.5920 earlier in the week. The pullback remained above 0.5880, keeping the pair below 0.5900.
Markets stayed cautious ahead of weekend talks between the US and Iran. A 10-day ceasefire between Israel and Lebanon began on Thursday.
Reuters reported, citing Iranian sources, that US and Iran negotiators have reduced their aims for a lasting deal. They are now seeking a temporary memorandum to prevent further escalation.
Friday’s data calendar was light, with attention on remarks from San Francisco Fed President Mary Daly and Fed Governor Christopher Waller. CME FedWatch showed futures fully pricing no rate change at the 30 April meeting.
Expectations for further US rate cuts later this year fell to about 30% from above 60% a month earlier. The report linked the shift to inflation pressures in March tied to the Iran war.
The NZD is influenced by New Zealand economic conditions, Reserve Bank of New Zealand policy, Chinese demand, and dairy prices. The RBNZ targets inflation between 1% and 3%, aiming to keep it near 2%, and rate differences versus the US can affect NZD/USD.
We recall the market’s nervous waiting game this time last year over the US-Iran memorandum, which did bring a temporary calm. Now, with renewed tensions around key shipping lanes causing oil to spike 6% last week to over $92 a barrel, risk aversion is returning. This situation mirrors the uncertainty we saw in 2025, suggesting a flight to the safety of the US Dollar is likely.
The Federal Reserve’s stance is a familiar story, as expectations for rate cuts have once again been pushed back, just as they were during the conflict last year. Current CME FedWatch Tool data shows only a 25% chance of a rate cut by June 2026, a sharp drop from the 65% priced in at the start of the year after stronger-than-expected March inflation figures. This solidifies the dollar’s strength, making it the dominant currency in many pairs.
On the New Zealand side, however, fundamentals appear more supportive than they did in early 2025. China’s latest Q1 2026 GDP came in at a surprising 5.2% and the most recent Global Dairy Trade auction saw prices rise for the fourth consecutive time. These factors are providing a floor for the Kiwi, preventing it from collapsing against the dollar’s broad strength.
This creates a tense tug-of-war for NZD/USD, with US dollar strength clashing with surprisingly resilient New Zealand fundamentals. We are seeing implied volatility for one-month NZD/USD options rise, suggesting traders expect bigger price swings but no clear direction. Therefore, strategies that benefit from a range-bound market with potential for sharp moves, like buying a strangle option, could be considered.
