- NZD/USD struggles to build on an Asian session uptick, though the downside remains cushioned.
- Iran diplomacy hopes and receding Fed hike bets undermine the USD, lending support to the pair.
- Hawkish RBNZ expectations also warrant caution for bears ahead of the FOMC meeting this week.
The NZD/USD pair kicks off the new week on a positive note amid a broadly weaker US Dollar (USD), though it struggles to capitalize on gains beyond the 0.5800 mark.
The US and Iran paused following 13 straight nights of strikes, reviving hopes for a diplomatic resolution to end a five-month-old US-Iran conflict. US ambassador to the United Nations (UN) Mike Waltz said that while forces remained locked and loaded, President Donald Trump wants to give negotiations a little bit of room. This prompts traders to unwind some of the geopolitical risk premium, which, in turn, undermines the safe-haven USD and lends some support to the NZD/USD pair.
Meanwhile, the latest optimism triggers a steep decline in crude oil prices, easing inflationary fears and tempering US Federal Reserve (Fed) rate-hike expectations. This is evident from a modest pullback in US Treasury bond yields, which turns out to be another factor that drags the USD away from the vicinity of the monthly high, retested last week. Traders, however, refrain from placing aggressive bearish bets on the USD and opt to wait for the outcome of a two-day FOMC policy meeting.
The US central bank is scheduled to announce its decision on Wednesday and is universally anticipated to leave interest rates unchanged. Hence, investors will look for fresh cues about the Fed’s future policy path, which will play a key role in influencing the USD price dynamics. Apart from this, developments surrounding the Middle East crisis should infuse volatility in financial markets, which should further drive the USD demand and provide some meaningful impetus to the NZD/USD pair.
In the meantime, stronger-than-expected inflation data from New Zealand reaffirmed expectations that the Reserve Bank of New Zealand (RBNZ) will deliver another rate hike at its September meeting. The hawkish outlook might continue to act as a tailwind for the New Zealand Dollar (NZD), which favors NZD/USD bulls and suggests that any corrective pullback is more likely to be bought into.
