NZD/USD moved in a tight range near 0.5900 in Asian trading on Wednesday, after rising over the past two days. It stayed close to a more than one-month high reached on Tuesday.
The US dollar rose slightly from its lowest level since early March, linked to instability in the Strait of Hormuz. Iran’s UN ambassador said the US blockade that began on Monday breached Tehran’s sovereignty, and the IRGC said it would retaliate.
Markets also focused on the chance that US-Iran peace talks could restart. US Vice President JD Vance said negotiations were ongoing, with Washington seeking a broader agreement on Iran’s economic ties with the world.
Expectations for a US Federal Reserve rate rise weakened, limiting the dollar’s bounce and supporting NZD/USD. US data on Tuesday showed the Producer Price Index rose less than expected in March.
Lower US Treasury yields and a positive risk tone reduced demand for the safe-haven dollar. This supported the NZD/USD pair’s upward bias.
Looking back to this time in April 2025, we saw the NZD/USD struggling around the 0.5900 level despite some upward momentum. The market was caught between optimism over US-Iran diplomacy and the reality of geopolitical risk in the Strait of Hormuz, which was keeping the US dollar supported. This created a tense balance for the pair.
The view that the US dollar would weaken was supported by inflation data at the time. We saw the US Producer Price Index for March 2025 come in softer than expected, mirroring the 0.5% month-over-month drop we saw in March 2023. This eased fears about aggressive Federal Reserve rate hikes and caused a temporary dip in US Treasury yields, helping the Kiwi dollar.
However, we must remember that the market’s hope for a less aggressive Fed was often premature during that period. For instance, after the soft inflation prints in early 2023, the Fed proceeded with rate hikes in both March and May of that year. This historical pattern suggests that any USD weakness should be viewed with caution, as underlying policy was still tight.
For derivative traders today, this highlights the risk of volatility driven by central bank policy surprises. The uncertainty surrounding the Fed’s path and the geopolitical situation a year ago meant that implied volatility was a key metric to watch. Strategies that profit from price swings, such as buying straddles or strangles, would have been more prudent than taking a simple directional bet.
We also have to consider the actions of New Zealand’s own central bank. Around that same time, we saw the Reserve Bank of New Zealand deliver surprisingly aggressive rate hikes, such as the unexpected 50-basis-point hike in April 2023. This reminds us that the NZD/USD is a two-sided story, and strength in the Kiwi can come from domestic policy as much as from US dollar weakness.
Given this context, traders should be prepared for the NZD/USD to remain sensitive to shifts in interest rate differentials. A simple bet on the Kiwi rising may be risky, so using options to define risk is a sensible approach. Consider buying NZD/USD put options as a hedge against any renewed US dollar strength if inflation proves more stubborn than anticipated.
