NZD/USD bounces back from 0.5750 as risk-off sentiment diminishes

NZD/USD Rebounds as US Dollar Softens

During Friday's Asian trading session, the NZD/USD pair ended its three-day decline and hovered near 0.5780. The New Zealand Dollar gained ground as the US Dollar weakened, following a reduction in risk aversion. This shift came after US President Donald Trump announced a 10-day pause on strikes against Iran’s energy sector at Tehran’s alleged request. However, Iran refuted making such a request, highlighting ongoing diplomatic tensions and the slim chances of an imminent ceasefire.

Despite the recent pullback, the US Dollar’s losses may be limited due to renewed inflation worries. The prospect of further interest rate cuts by the Federal Reserve (Fed) has diminished, and expectations for a potential rate hike by the end of the year have grown.

Philip Jefferson, Vice Chair for Supervision at the Federal Reserve, noted that while higher energy prices are likely to have only a minor effect on inflation, a prolonged increase could have a more pronounced impact. Meanwhile, Fed Governor Michael Barr cautioned that another surge in prices could push inflation expectations higher, emphasizing the need for the Fed to carefully evaluate economic data before making policy changes.

In New Zealand, the ANZ–Roy Morgan Consumer Confidence index dropped sharply to 91.3 in March from 100.1 in February, reflecting growing uncertainty amid the ongoing Middle East conflict. Investors are closely watching the Reserve Bank of New Zealand’s (RBNZ) policy outlook as geopolitical tensions persist.

RBNZ Governor Anna Breman stated earlier this week that the central bank would look past short-term, energy-driven inflation spikes but remains prepared to raise interest rates if sustained pressures threaten to destabilize inflation expectations. Since the onset of the conflict, markets have increasingly anticipated the possibility of earlier monetary tightening to address rising energy costs.