NZD/USD fell for a third straight session on Thursday, trading near 0.5860 and down 0.90% on the day. The move followed a firmer US Dollar and higher geopolitical tension.
The US Dollar Index DXY was near 99.70, close to its highest level since November. Markets reassessed US monetary policy expectations as inflation risks rose
Oil Prices And Fed Expectations
Higher Oil prices increased concern about persistent inflation and reduced expectations for near term Federal Reserve easing. Markets no longer fully price in a single 25 basis point cut this year
The US Iran war reached its thirteenth day on Thursday, with attacks intensifying across the Middle East. Iran reportedly targeted commercial vessels near the Strait of Hormuz, a major Oil shipping route
Mojtaba Khamenei said closure of the Strait of Hormuz could continue as a tactic against Iran’s adversaries. The International Energy Agency announced the release of 400 million barrels from emergency reserves, yet Oil prices stayed volatile
The New Zealand Dollar remained under pressure amid risk off trading and higher energy costs. Attention now turns to Friday’s US data, including PCE inflation, Q4 GDP, Durable Goods Orders, and the University of Michigan Consumer Sentiment Index
Looking Back At Late 2025
Looking back at the end of 2025, we saw the US Dollar strengthen significantly due to the outbreak of the US Iran conflict and the resulting spike in oil prices. This fear of persistent inflation pushed the Federal Reserve into a very hawkish stance, causing pairs like NZD/USD to fall sharply. The market was pricing in a prolonged period of high US interest rates
As of today, March 12, 2026, the situation has evolved, and that initial narrative is being tested. Recent US inflation data for February came in sticky at 3.2%, justifying the Fed’s decision to hold rates steady, but this is now widely expected. The key change is that the initial shock from the conflict has faded, with markets adapting to the geopolitical tensions
Oil prices, which we saw surge well above $100 a barrel late last year, have now stabilized and are trading around $82 a barrel. This is largely because the emergency reserve releases from the IEA were effective and global shipping found alternative routes, reducing the immediate supply disruption fears. This price stability lessens the pressure on the Federal Reserve to consider further hikes based solely on energy costs
Meanwhile, the Reserve Bank of New Zealand has been forced to react to the domestic inflation caused by that 2025 energy price shock. We have seen them hold their Official Cash Rate firm at a restrictive 5.50%, with recent statements suggesting they may need to stay higher for longer than even the Fed. This has started to provide a strong base of support for the Kiwi dollar
Given this shift, the intense downward pressure on NZD/USD appears to be easing. We should now consider strategies that benefit from this potential bottoming out process, as the RBNZ’s hawkishness now rivals, if not exceeds, the Fed’s. Derivative traders could look at selling out of the money NZD/USD put options to collect premium, betting that the pair will not fall much further from current levels
