NZD/USD traded lower near 0.5695 in Monday’s Asian session and stayed below 0.5700. The US Dollar firmed as markets monitored Middle East developments, with focus also turning to the Reserve Bank of New Zealand (RBNZ) meeting on Wednesday.
Donald Trump set a Tuesday deadline for Iran to reopen the Strait of Hormuz and warned of strikes on power plants and bridges if it did not comply. Iran’s foreign ministry spokesperson said Tehran would respond to attacks on its infrastructure and target similar US-owned or related assets.
Rbnz Policy Outlook
The RBNZ is widely expected to keep the Official Cash Rate on hold at 2.25% at its April meeting. Governor Anna Breman said the bank may look through temporary energy-driven inflation but could raise rates if long-term expectations are at risk.
Markets have priced in nearly a 40% probability of a rate rise by September 2026, with a full 25 basis points priced in by December. NZD moves are also linked to New Zealand economic data, Chinese growth trends, and dairy prices, while shifts in risk appetite can support or weaken the currency.
We are seeing the NZD/USD pair facing resistance around the 0.5880 level, pressured by broad-based US dollar strength. This feels similar to the situation we observed in April of 2025, when geopolitical tensions in the Middle East pushed the pair below 0.5700. While the specific headlines have changed, the underlying theme of safe-haven demand for the greenback continues to cap any significant Kiwi rallies.
Last year, we were anticipating the Reserve Bank of New Zealand to hold its Official Cash Rate at 2.25%, which they did before hiking later in the year. Now, with the OCR at 2.75% and New Zealand’s latest quarterly inflation figures still elevated at 4.7%, the RBNZ is in a difficult position. This contrasts with the US, where a robust labor market, evidenced by the addition of 275,000 jobs in the last non-farm payrolls report, keeps the Federal Reserve firmly on a hawkish path.
The upcoming RBNZ meeting this Wednesday introduces event risk, making short-term directional bets tricky. Implied volatility on one-week NZD/USD options has ticked up, suggesting traders are preparing for a move. A viable strategy is to consider buying a strangle, using out-of-the-money puts and calls to profit from a spike in volatility regardless of the RBNZ’s exact tone.
Kiwi Specific Support Factors
We cannot ignore the fundamental drivers unique to the Kiwi, which are providing some support at these lower levels. Recent data showed a surprise jump in the Global Dairy Trade index, which rose 2.8% at the last auction, a historically positive sign for New Zealand’s export revenue. Additionally, signs of stabilization in China’s economy, a key export market, could cushion the NZD from further significant declines.
Given the dominant US dollar strength, using any Kiwi strength to establish bearish positions appears prudent in the weeks ahead. Selling rallies toward the 0.5900 psychological level, while using call options to hedge against a surprise breakout, offers a defined-risk approach. This strategy allows us to maintain a bearish bias while respecting the potential for short-term bounces driven by local data.
