The NZD rose to two-month highs against the USD on Thursday, extending gains for a third day and reaching 0.5983. Demand for the USD eased amid reports of progress on a US–Iran peace deal and lower oil prices.
Reports said Tehran is reviewing a 14-point plan submitted by the US. Donald Trump said he had “very good talks” with Iran and suggested a deal could be reached soon.
Oil Prices And Risk Appetite
Al Hadath reported on X that communications are under way to reopen the Strait of Hormuz. WTI traded just above $90 and Brent fell below $100, which supported the NZD as New Zealand imports oil.
New Zealand data earlier this week showed the unemployment rate fell in Q1, with little market reaction. In the US, ADP reported stronger-than-expected job creation in April, ahead of Friday’s Nonfarm Payrolls, with weekly initial jobless claims and Fed speakers due later.
NZD moves with New Zealand’s economic health and Reserve Bank of New Zealand policy, plus Chinese demand and dairy prices. The RBNZ targets inflation of 1% to 3%, near 2%, and interest rate differences with the US also affect NZD/USD.
NZD often rises when markets favour risk and falls in periods of uncertainty.
Rate Differentials And Carry
We see the Kiwi dollar holding its ground, a shift from the dynamics we observed back in 2025 when a potential US-Iran deal was the main driver. Today, with WTI oil prices stable around $82 a barrel, which is lower than the $90+ levels seen then, the pressure on the dollar as a safe haven has eased. This provides a tailwind for commodity currencies like the NZD.
The rate differential continues to favor the Kiwi, albeit slightly, with the Reserve Bank of New Zealand holding its cash rate at 5.50% to combat persistent inflation, which was last reported at 3.8%. This contrasts with the US Federal Reserve’s more dovish tone, keeping the NZD attractive for carry trades. Derivative traders should be pricing in options that reflect the RBNZ remaining hawkish for longer than the Fed.
However, we must watch New Zealand’s domestic picture, as the economy is showing signs of cooling after a long period of tight monetary policy. The latest data from Stats NZ shows the unemployment rate has ticked up to 4.3% in the first quarter of 2026. This suggests that any further strength in the Kiwi might be limited if growth continues to falter.
Looking externally, the health of the Chinese economy remains a crucial factor, and recent PMI figures hovering just above 50 suggest a fragile recovery, not a strong boom. On a more positive note for the Kiwi, the latest Global Dairy Trade auction saw prices rise by 1.5%, providing some fundamental support. Traders should use options to hedge against any sudden negative data coming out of China.
Overall risk sentiment appears more balanced now than during the Middle East tensions of 2025, with the VIX index currently sitting near 18. This environment suggests that while the NZD has support from interest rates, its upside is capped by domestic and Chinese economic concerns. Therefore, we believe strategies like call spreads on NZD/USD could be appropriate to capture modest gains while limiting risk if the pair fails to break higher.
