Geopolitical risks drive USD strength, pressuring NZD as Fed rate hike odds drop and RBNZ tightening expectations persist.
NZD/USD declined to 0.5880 in European trading Tuesday, extending a two-day losing streak as the USD gained safe-haven support. Escalating US-Iran tensions, including a naval blockade and threats to declare a key waterway US territory, bolstered demand for the Greenback.
The USD’s rally faces headwinds as Fed rate hike expectations soften. July US Nonfarm Payrolls missed forecasts, and modest inflation data reduced the likelihood of imminent tightening. CME FedWatch Tool data shows a 35% chance of a September hike, down from 47% a month ago.
The NZD’s downside may be limited by RBNZ rate hike expectations. Analysts anticipate another 25-basis-point increase next month, supported by signals of less accommodative monetary policy. However, Commerzbank notes reliance on partial inflation data until full quarterly figures are released.