AUD/USD was little changed on Monday after recovering from earlier losses, after US President Donald Trump delayed planned strikes on Iran’s energy infrastructure. The pair traded near 0.7018 after rising from an intraday low of 0.6996, the weakest level since 6 February. Reduced demand for the US Dollar supported the Australian Dollar as risk appetite improved. Trump said on Truth Social that he instructed the Department of War to postpone strikes on Iranian power plants for five days while discussions continue.

Middle East Uncertainty Limits Upside

Buying remained limited as uncertainty over the Middle East conflict persisted. Iranian officials said no talks had been held with the United States, while oil prices fell after Trump’s comments and the Strait of Hormuz remained effectively closed. Oil-related inflation concerns continued, adding to price pressures in Australia. The Reserve Bank of Australia raised its cash rate to 4.10% last week after an earlier rise to 3.85% in February. Focus turns to Australia’s February inflation data due later this week, which will not include the latest rise in energy prices. Markets also changed expectations for US policy, after the Federal Reserve held rates at 3.50%–3.75% and its dot plot pointed to one cut in 2026, with higher inflation forecasts. Preliminary S&P Global PMI data for March from Australia and the United States is due on Tuesday.

Looking Back To 2025 Market Jitters

We recall the market jitters around this time in 2025 when AUD/USD briefly recovered to the 0.7018 level. This was due to a temporary easing of geopolitical tensions with Iran, which provided a short-lived boost to risk appetite. The uncertainty, however, kept any real buying momentum in check. A year later, that 0.7000 level seems distant, as the pair currently trades closer to 0.6550. While the specific Iran crisis of 2025 has subsided, broader geopolitical risks have continued to simmer, capping enthusiasm for risk-sensitive currencies. We’ve seen how these background tensions create a persistent drag on the market. We remember the Reserve Bank of Australia had just hiked its cash rate to 4.10% back then, and those oil-driven inflation fears proved to be well-founded. The central bank was forced to tighten further, bringing the cash rate to its current level of 4.35% where it has remained for several months. Annual inflation, while down from its peak, has stubbornly hovered around 3.5%, keeping the RBA cautious. The repricing of Federal Reserve expectations we saw in 2025 was only the beginning of the story. The anticipated prolonged pause at 3.75% never materialized, as persistent core inflation forced the Fed to hike rates to the current 5.25%-5.50% range. This significant rate differential between the US and Australia has been a major headwind for AUD/USD over the past year. Given this backdrop, traders should consider strategies that benefit from range-bound price action or protect against downside risk in AUD/USD. Selling out-of-the-money strangles could be a viable strategy to collect premium, assuming volatility remains contained within the recent lows. However, purchasing put options on the Aussie dollar offers a clearer way to hedge against any sudden risk-off events or a more hawkish Fed. Create your live VT Markets account and start trading now.

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USD/CHF fell to about 0.7870 on Monday and was down 0.12% at the time of writing. The drop followed a weaker US Dollar after tensions in the Middle East eased for now. US President Donald Trump ordered a five-day delay of possible strikes on Iranian energy sites while talks continue. Oil prices fell, which reduced inflation expectations and weighed on US Treasury yields and the US Dollar.

Middle East Developments And Dollar Reaction

Uncertainty remains, with Iranian sources cited by Fars News Agency denying talks with Washington. Iran also repeated its position on the Strait of Hormuz, keeping markets volatile and limiting further US Dollar falls. The Swiss Franc has not gained much despite the move in the US Dollar. MUFG said the Swiss National Bank opposes sharp currency rises and may intervene, which has restrained CHF strength. Rate expectations still offer medium-term support to the US Dollar. Markets have mostly ruled out Federal Reserve rate cuts this year, and energy risks are keeping inflation concerns elevated. With little US economic data early in the week, the pair is likely to follow risk mood and Middle East developments. These factors remain the main short-term drivers.

Policy Divergence And Volatility Implications

We remember how the temporary easing of Middle East tensions in 2025 caused a brief dip in the US Dollar. That period taught us that while geopolitical headlines create short-term noise, the underlying monetary policy differences between central banks are what truly drive medium-term currency trends. Those headline-driven moves proved to be fleeting, with the dollar quickly finding its footing again. The situation today has changed significantly from last year’s environment of no expected rate cuts. Federal Reserve policy has shifted, with Fed funds futures now pricing in a 65% probability of at least two quarter-point rate cuts by the end of 2026. This reflects recent inflation data, which saw the core PCE price index cool to a 2.8% annual rate last month, giving the central bank more room to ease. On the other side, the Swiss National Bank remains committed to preventing excessive Franc appreciation, just as it was in 2025. This was made clear when they surprised markets with a 25 basis point rate cut earlier this quarter, becoming one of the first major central banks to begin an easing cycle. Their action effectively puts a cap on how much strength the Swiss Franc can gain against other currencies. This dynamic, with a dovish Fed and an even more dovish SNB, suggests that while the US Dollar may face headwinds, any sharp drop in USD/CHF is unlikely. Looking at the options market, one-month implied volatility for the pair is hovering at a modest 7.2%, down from the double-digit levels seen during past geopolitical flare-ups. This environment suggests that selling volatility through strategies like short strangles could be advantageous, aiming to profit from range-bound price action. However, we must remain aware of the geopolitical wildcards that defined last year’s trading. While the direct US-Iran confrontation has subsided, persistent friction in global shipping lanes continues to pose a risk to supply chains and energy prices. Any sudden escalation could cause a spike in volatility, making it crucial to manage position sizes carefully when selling options. Create your live VT Markets account and start trading now.

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The Pound Sterling rose against the US Dollar on Monday after US President Donald Trump delayed further military action against Iran. He said talks between the two countries were productive and could help end hostilities in the Middle East. At the time of writing, GBP/USD was trading at 1.3459. This was up by more than 0.90% on the day.

Geopolitical De escalation And The Dollar

Looking back at the geopolitical shocks of 2025 and earlier, we can see how a de-escalation in tensions could send GBP/USD soaring towards the 1.3400 level. However, today’s market is in a different place, with the pair currently struggling to hold above 1.2750. The fundamental driver from that past event was a flight from the safe-haven US Dollar, a dynamic we must watch for now. The core of the issue for the coming weeks is less about a single event and more about central bank policy divergence. With UK inflation holding stubbornly higher at 3.4% compared to the US rate of 3.2%, the Bank of England has less room to cut interest rates than the Federal Reserve. This subtle difference is creating underlying support for the Pound, preventing a steeper decline. We are now seeing new geopolitical risks emerge, not from the Middle East, but from renewed trade frictions between the US and China over semiconductor technology. This uncertainty is causing the US Dollar to strengthen as a safe haven, putting pressure on GBP/USD. Traders should be positioned for this risk-on, risk-off dynamic where bad news for global trade is good news for the dollar. For derivative traders, this environment suggests buying volatility might be a prudent strategy. The implied volatility on one-month GBP/USD options has recently ticked up to 8.2%, reflecting market uncertainty but still below the peaks seen during the banking turmoil of 2023. Using options like a long straddle allows a trader to profit from a large price swing in either direction without needing to correctly guess the outcome of these global tensions. Those with a directional bias should watch key levels closely using futures and forwards. We see significant technical support for GBP/USD around the 1.2600 mark, a level that has held multiple times over the last year. A decisive break below this could signal a move towards 1.2450, while a bounce could be a signal that dollar strength is fading for now.

Key Levels And Positioning

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WTI crude fell about 9% on Monday, dropping back below $100 a barrel and testing $90 after trading above $101 early on. It then hit an intraday low near $84 before recovering towards $90, creating a roughly $17 high-to-low range. A post said the US and Iran had held talks and that strikes on Iranian power plants were delayed for five days. This replaced a 48-hour ultimatum that threatened action if the Strait of Hormuz was not reopened.

Geopolitical Headlines Drive Volatility

Tehran denied that talks were taking place. Iran’s Islamic Revolutionary Guard Corps said it would target regional energy and desalination sites if Iranian power plants were attacked. The IEA’s 400-million-barrel reserve release, announced on 11 March, is starting to arrive, with the US providing 172 million barrels from the SPR over about 120 days. Goldman Sachs set WTI forecasts at $98 for March and $105 for April, with Hormuz flows at about 5% of normal volume. On a 5-minute chart, WTI traded at $89.29, below a 200-period EMA near $93.40. Support levels were cited at $88.75, $86.50 and $85.70, with resistance at $90.00, $90.50 and $91.00. WTI is a US crude benchmark from the Cushing hub. Prices are driven by supply and demand, OPEC decisions, the US dollar, and weekly API and EIA inventory reports, which are within 1% of each other 75% of the time.

How To Read The Current Setup

We remember the massive intraday volatility this time last year, when WTI swung nearly $17 in a single session. That period in March 2025 was defined by conflicting geopolitical headlines concerning the US and Iran, which created a chaotic and unpredictable market for crude oil. The uncertainty around the Strait of Hormuz kept traders on edge. Today, the market is far calmer, with WTI currently trading near $82.50 a barrel. Geopolitical risk has eased significantly, with recent data showing the Strait of Hormuz operating at over 95% of its normal volume for the past six months. This is a stark contrast to the crisis-level 5% flow rates we saw during the peak tensions in 2025. On the supply side, this week’s EIA report showed a surprise inventory build of 2.1 million barrels, hinting at softer than expected demand. This comes as efforts to refill the Strategic Petroleum Reserve, which was heavily drawn down during the 2025 coordinated release, have been slow and methodical. OPEC+ has also held its production quotas steady for the second consecutive meeting, signaling a desire for stability. Unlike last year when Fed officials were considering rate cuts, the focus now is on managing stubborn inflation. Current market pricing, according to the CME FedWatch Tool, implies a 70% probability of a 25-basis-point rate hike in May. This is strengthening the US Dollar and acting as a headwind for crude prices. Given this backdrop of stable supply and a hawkish central bank, selling rallies towards the $85 resistance level looks like a prudent strategy for the coming weeks. The extreme volatility of 2025 is not our current reality, making range-bound strategies more attractive. For those wanting to define their risk, buying puts with a strike price near $80 could offer protection against a break lower. We are closely watching the $78 per barrel level as key support, a zone that has held firm twice since the beginning of the year. A sustained break above the $85-$86 area would be needed to signal a meaningful shift in market momentum. For now, the path of least resistance appears to be sideways to slightly lower. Create your live VT Markets account and start trading now.

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The S&P 500 failed to build on Thursday’s bounce and began falling early in the European session. The Nasdaq also lost its earlier outperformance, with the move becoming clearer later in the session amid triple witching. Market attention centred on how the 6,620 area would hold and whether the 6,590s might trigger a rebound. Rebound attempts stalled around the mid 6,910s, and late-session price action suggested forced selling.

Key Levels And Market Reaction

The US dollar stalled near 100, short-term yields rose, and gold strengthened, matching a broad risk-reduction move. The S&P 500 closed clearly below its 200-day moving average. Political risk was also referenced, including a 48-hour deadline attributed to Trump and the potential for escalation. A separate mention was made of a “5-day pause” tweet and uncertainty over whether it would hold. We are seeing a familiar pattern where the market’s inability to extend a bounce is followed by a sharp downturn, much like the price action we observed back in 2025. The Nasdaq is again showing signs of losing its outperformance, which has historically been a leading indicator for broader market weakness. This setup suggests that any upcoming rallies should be viewed with suspicion. The CBOE Volatility Index (VIX) is reflecting this underlying tension, having recently climbed from a low near 13 to over 16.5 in the past two weeks. This indicates that traders are beginning to purchase protection against a potential decline. For derivative traders, this means the cost of insurance through put options is rising, making it prudent to act sooner rather than later.

Rates Volatility And Positioning

Adding to the pressure, short-term yields remain elevated, with the 2-year Treasury yield stubbornly holding above 4.7% this month. We remember well from 2025 how a surge in yields can quickly trigger a derisking event across equities. This persistent high-yield environment continues to make the case for holding stocks over cash much more difficult. Market internals are also flashing warning signals, as the advance-decline line for the NYSE has failed to confirm the S&P 500’s most recent highs. This sort of negative divergence shows that fewer stocks are participating in the upside, concentrating risk in a small number of names. A sudden reversal in those leaders could easily trigger the kind of forced selling that characterized past downturns. Given this backdrop, traders should consider strategies that benefit from either a decline or a sharp increase in volatility. Buying put spreads on major indices like the SPY or QQQ can offer a cost-effective hedge with defined risk. Alternatively, for those expecting a sudden spike in fear, long positions in VIX call options could prove profitable in the coming weeks. Create your live VT Markets account and start trading now.

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Gold rebounded from year-to-date lows on Monday. It traded near $4,375 after dipping below $4,100, the lowest since November 2025, then rose to an intraday high of $4,536. Reuters reported that Donald Trump told the Department of War to delay planned strikes on Iranian power plants and energy infrastructure for five days, pending talks. Oil fell, which eased inflation concerns and pulled down the US Dollar and Treasury yields.

Geopolitical Signals Drive Near Term Volatility

Fars said there were no direct US-Iran contacts, including via intermediaries. IRNA reported Iran said its position on the Strait of Hormuz and terms to end the war were unchanged, and it had not replied to messages about US requests for talks. Over the weekend, Trump said Iran’s power systems could be targeted if the Strait was not reopened within forty-eight hours. Iran warned it could hit US and Israeli energy, IT, and desalination sites. Markets have removed expectations for Federal Reserve rate cuts this year. Higher rates tend to weigh on non-yielding gold. Technically, gold bounced near the 200-day SMA at $4,095, while trading below the 100-day and 50-day SMAs. RSI is near 26 and resistance sits near $4,500, then $4,600, with $4,970 and $5,000 above; support is $4,000.

Central Bank Demand Underpins Long Term Support

Central banks added 1,136 tonnes of gold worth about $70 billion in 2022, the highest on record, World Gold Council data show. Gold often moves opposite to the US Dollar and Treasuries, and can react to geopolitics, inflation, rates, and risk appetite. The temporary five-day pause in hostilities introduces significant uncertainty, and we should expect volatility to remain extremely high. The Gold Volatility Index (GVZ) has already spiked over 30% in the last week, reflecting trader anxiety over the binary outcome of these talks. This environment suggests that simple directional bets are risky, and strategies that profit from large price swings could be more appropriate. With the situation in the Strait of Hormuz unresolved, any breakdown in discussions could cause a rapid price surge back toward the $5,000 mark. We saw a similar dynamic during the initial phases of the Black Sea conflict in 2022, where safe-haven demand quickly overshadowed all other factors. Traders should therefore consider holding or buying call options to protect against a sudden escalation and a sharp rally in gold. Conversely, if de-escalation holds and the focus shifts back to the economy, gold faces strong headwinds from hawkish central banks. Last week’s producer price index data showed core inflation running at a stubborn 4.1% annually, reinforcing the Federal Reserve’s “higher for longer” stance. This makes holding non-yielding gold expensive and could push prices back down to test the $4,100 support level, justifying puts for downside protection. The technical picture confirms this tension, with gold caught between its long-term support at the 200-day moving average and significant overhead resistance around $4,600. This defined range makes options strategies like strangles, which involve buying both an out-of-the-money call and put, particularly useful. Such a position would profit from a significant breakout in either direction once the five-day deadline expires. We must also watch the price of crude oil, which is the primary driver of current inflation fears. West Texas Intermediate (WTI) futures, despite pulling back to $135 a barrel, remain well above the 2025 average of $110, keeping pressure on global economies. A failure to reopen the Strait of Hormuz would likely send oil prices soaring, further complicating central bank decisions and supporting gold as an inflation hedge. Underneath the short-term noise, the long-term trend of central bank buying provides a solid foundation for gold prices. We remember central banks adding a record 1,136 tonnes in 2022, and preliminary World Gold Council data for 2025 shows they continued to be strong net buyers, accumulating over 950 tonnes. This consistent demand from official sources should limit the extent of any deep, sustained sell-off in the coming weeks. Create your live VT Markets account and start trading now.

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Silver rebounded on Monday after falling to a year-to-date low in Asian trade. XAG/USD traded near $68.00 after dipping to about $61.01, its weakest level since December 2025. The move followed a pullback in the US Dollar and Treasury yields after US President Donald Trump delayed planned strikes on Iran’s energy infrastructure. He said strikes on Iranian power plants were postponed for five days, depending on talks. Iranian officials said no negotiations have taken place with the United States. Iran’s Foreign Ministry said its position on the Strait of Hormuz and conditions to end the war are unchanged, and Tehran has not replied to messages relayed by other countries, according to IRNA. Technically, silver remains below the 50-day SMA at $86.20 and the 100-day SMA near $73.80, keeping near-term bias bearish. The 200-day SMA is near $57.60 and still slopes higher. The RSI is near 34 and below 50, while the MACD remains below its signal line in negative territory. Resistance sits near $73.80, then $78.00–$80.00, with $86.20 as a further level. Support is at $61.01, then $57.60. A break below $57.60 could open a move towards $50.00. With silver trading well below its 50 and 100-day moving averages, the short-term path of least resistance is clearly downward. We are seeing significant selling pressure, with major silver ETFs reporting net outflows of over 15 million ounces this month alone. For traders, this reinforces the bearish case, making any rally toward the $73.80 level a potential opportunity to initiate new short positions. Industrial demand, a key pillar for silver, also appears to be softening, adding to the headwinds. Recent data from the Global PV Institute showed a 5% sequential decline in solar panel installations for Q1 2026, marking the first quarterly drop since the energy crisis of 2024. Furthermore, the latest US CPI data for February 2026 cooled slightly, reducing silver’s appeal as an immediate inflation hedge and supporting the US Dollar. Given the geopolitical situation, we see implied volatility on silver options reaching 12-month highs, with the Cboe Silver ETF Volatility Index (VXSLV) pushing past 45. This makes buying puts with strike prices near the $57.60 support level an attractive strategy to capitalize on both the bearish momentum and heightened uncertainty. The elevated volatility means option premiums are expensive, but the potential for a sharp move lower on any escalation with Iran could yield significant returns. However, we must remember from the 2025 perspective how markets reacted to the Ukraine conflict in 2022, where initial dips on de-escalation rumors were quickly reversed. The rising 200-day moving average suggests the long-term uptrend is still holding, meaning an outright escalation could trigger a violent short squeeze. Therefore, using bear put spreads could be prudent, as it defines risk while profiting from a move down toward the $57.60 to $61.00 range.

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US shares rose on Monday, with the Dow Jones Industrial Average up more than 600 points, about 1.5%, to regain 46,000. The S&P 500 added about 1.4% towards 6,600 and the Nasdaq Composite rose roughly 1.6%, after the Dow and Nasdaq were each about 9.8% below record highs through Friday. Moves followed a Truth Social post saying the US and Iran had “very good and productive conversations” and that strikes on Iranian power plants and energy infrastructure would be delayed for five days. Dow futures briefly jumped more than 1,000 points, then eased after Iranian state media denied direct talks.

Oil Prices Retreat After Deescalation Signals

Oil fell sharply, with WTI down about 8% to around $91 a barrel after nearing $100 earlier, and Brent down more than 7% to about $101 after touching above $114 in Asia. Both benchmarks were still more than a third above late-February pre-war levels. Goldman Sachs raised near-term oil forecasts, with Brent expected to average above $100 through April, and cited the Strait of Hormuz handling about 20% of global seaborne oil trade. The IEA said it was ready for another emergency release from strategic stockpiles. Caterpillar rose about 4%, while 3M and Home Depot were each up more than 3%, and Delta and United gained as oil fell. Tesla rose about 3%, while Nvidia, Amazon and Apple each added more than 2%. The Fed held rates at 3.50%–3.75% and the dot plot points to one 2026 cut after three 25-basis-point cuts ended 2025. The chance of no change through June rose to 89% from under 38% a month ago, with a small chance of a hike, and gold fell below $4,300 to its lowest level of 2026.

Trading Ideas In A Volatile Macro Backdrop

Given the market’s sharp reaction to a temporary de-escalation, we see an opportunity in volatility. The CBOE Volatility Index (VIX) has likely fallen below 20 today, making options cheaper, after trading near its highest levels of the year last week. We should consider buying S&P 500 (SPY) put options or VIX call options as a hedge, since the five-day pause is fragile and could be reversed by a single statement. The 8% drop in WTI crude oil is dramatic, but the fundamental supply risk has not vanished. With the Strait of Hormuz, which handles 20% of global seaborne oil, still a point of tension, we believe oil prices will find a floor not far from here. Instead of shorting crude directly, a better trade is to capitalize on lower input costs for beneficiaries like airlines, where fuel can account for over 25% of operating expenses, by buying call options on carriers like Delta (DAL) or United (UAL). The Federal Reserve’s stance is the market’s most powerful undercurrent, overriding even geopolitical news for some assets. With the market now pricing in an 89% chance of no rate cuts through June, the upward pressure on real yields will likely continue. This makes non-yielding assets like gold unattractive, so we are looking to add to bearish positions through put options on the SPDR Gold Shares (GLD), which has already broken to new lows for the year. We are seeing a classic risk-on rotation into cyclical stocks that benefit from economic confidence and lower energy prices. The leadership from industrials like Caterpillar and financials like JPMorgan is a strong signal this trend has legs if tensions continue to cool. We can gain exposure by purchasing call options on broad-based ETFs like the Industrial Select Sector SPDR Fund (XLI), a playbook similar to what we observed in 2021 as the economy reopened. Create your live VT Markets account and start trading now.

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GBP/USD rose on Monday after US President Donald Trump postponed further military action against Iran and said talks were “very good and productive”. GBP/USD was at 1.3459, up more than 0.90% at the time of writing. The US Dollar weakened, with the US Dollar Index (DXY) down 0.54% to 98.97 against six other currencies. Iran’s media reported there was no direct or indirect contact between Washington and Tehran.

Markets React To Shift In Risk Sentiment

Markets reacted with Wall Street opening higher and Oil prices falling, which weighed on the Dollar. International Energy Agency Director Fatih Birol said the current Middle East crisis has had a worse impact than the two Oil shocks of the 1970s combined, plus the effects on gas markets from the Russia-Ukraine war. Major central banks held interest rates steady last week, despite being in an easing cycle. Money markets price a Bank of England rate rise on 18 June at 52%, while Fed pricing implies 5 basis points of tightening for 17 June. Chicago Fed President Austan Goolsbee said he needs “proof on inflation” and is watching how Oil prices affect the economy. Fed Governor Stephen Miran said policy should not react to short-term headlines. On the daily chart, GBP/USD was also cited at 1.3381, below moving averages near 1.3500. Resistance is near 1.3430 and 1.3500/1.3510, while support sits at 1.3340 and 1.3220, then 1.3100. We should be cautious about this sudden sterling strength, as the rally is driven by a single social media post that is already being disputed by Iranian media. The conflicting reports suggest that this de-escalation is fragile and could reverse quickly, making the current GBP/USD level near 1.34 potentially unstable. This environment screams of headline risk, where gains can be erased in an instant.

Options And Positioning Considerations

The underlying inflation data does not support sustained sterling appreciation against the dollar, as both central banks remain hawkish. We saw UK CPI remain stubbornly elevated at 3.4% in February 2026, which is why money markets are pricing a 52% chance of a Bank of England rate hike by June. Similarly, with US core inflation still hovering just under 3% last quarter, the Fed has no room to consider cuts. The drop in oil prices is likely temporary relief rather than a new trend. After averaging over $100 per barrel in late 2025, Brent crude’s fall to around $108 today is minor in the grand scheme of the ongoing energy crisis mentioned by the IEA. This persistent price pressure is what keeps Fed officials on edge and reinforces the market view that rates will stay higher for longer. From a technical standpoint, the rally is approaching a significant resistance area around 1.3500, which has repeatedly capped gains. This makes it an attractive level to consider selling GBP/USD call spreads or buying puts, betting that the fundamental pressures and technical ceiling will push the price back down. This strategy positions us for a reversal once the initial optimism from the geopolitical news fades. Given the uncertainty, an options strategy focused on volatility may be more prudent than picking a direction. The conflicting reports on US-Iran talks are a perfect setup for a large price swing in the coming weeks. Using a long straddle on GBP/USD would allow us to profit from a significant move, whether it’s a sharp rally on confirmed peace talks or a steep drop if tensions flare up again. Create your live VT Markets account and start trading now.

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NZD/USD traded near 0.5850 on Monday at the time of writing, up 0.24% on the day. It rose as the US Dollar weakened, with the US Dollar Index near 99.40 after an earlier drop. The US move followed US President Donald Trump delaying possible military strikes on Iranian energy infrastructure by five days. The delay came after reports of “constructive” talks, which reduced demand for the US Dollar.

Mixed Signals Drive Volatility

Uncertainty remains after Iranian sources quoted by Fars News Agency said there was no direct communication with Washington. Mixed messages have added to volatility, which can affect risk-sensitive currencies such as the New Zealand Dollar. Markets are also watching the Strait of Hormuz, a key route for global energy supply. Trump said reopening could happen quickly if a deal is reached, a factor that could shift oil prices and inflation expectations. In New Zealand, the currency faces headwinds after Fitch Ratings downgraded the sovereign outlook to negative. The change followed a weak fourth-quarter GDP release and cited risks linked to energy dependence during the Middle East war. Support for the NZD comes from expectations of tighter policy. Markets are pricing about a 50% chance of an RBNZ rate rise as early as May, according to Reuters.

From Geopolitics To Policy Divergence

Looking back at early 2025, we saw the kiwi dollar get a temporary lift as geopolitical tensions in the Middle East seemed to cool off. The US dollar softened for a moment, pushing NZD/USD towards 0.5850. However, the situation was highly uncertain, with conflicting signals about any real agreement between the US and Iran. We recall the market pricing a 50% chance of a Reserve Bank of New Zealand rate hike, which did happen in May 2025 as the Official Cash Rate was lifted to 5.75%. That decision proved necessary, as annual inflation only recently fell to 3.8% in the first quarter of 2026, still well above the RBNZ’s target. This persistent inflation suggests the RBNZ will be slow to cut rates, providing a floor for the kiwi dollar. The concerns about New Zealand’s domestic economy from early last year were valid, as GDP growth remained sluggish for most of 2025. That weakness, which was confirmed in subsequent quarters, capped any significant gains for the currency at the time. We have since seen a modest economic rebound, with the latest data for the final quarter of 2025 showing 0.3% growth. Now, the focus has shifted from Middle East headlines to central bank policy divergence. With the US Federal Reserve now signaling potential rate cuts later this year as US inflation has cooled faster than New Zealand’s, the interest rate differential favors the kiwi. Considering this outlook, traders could use options to position for further upside in NZD/USD, perhaps by buying call spreads to target a move toward the 0.6300 level while managing premium costs. Create your live VT Markets account and start trading now.

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