The NZD/USD pair saw a slight increase after dipping the day before, trading near 0.5890 during Asian hours on Wednesday. Despite this rise, broader risk aversion might limit its growth potential. This unease is largely attributed to diminishing hopes for peace talks between the US and Iran, especially after President Trump scrapped plans for a special envoy’s visit to Pakistan. Additionally, Iranian regulations are still restricting ship movements through the Strait of Hormuz, compounded by a US blockade on Iranian ports.
President Trump voiced his discontent with Iran’s recent proposal to resolve the conflict and reopen the vital waterway, noting that it omits discussions regarding its nuclear program. This situation continues to support elevated oil prices, which in turn fuels inflation concerns and reinforces more hawkish sentiments about the Federal Reserve’s future actions.
On the other hand, the US dollar is maintaining an upward trend, driven by increasing expectations for an extended period of interest rate hikes by the Federal Reserve. It is anticipated that the central bank will keep interest rates steady during its April meeting, holding the federal funds target range at 3.50% to 3.75% for the third consecutive time.
Given the ongoing price pressures, it is likely that the Reserve Bank of New Zealand (RBNZ) will tread cautiously or even consider tightening measures to steer inflation back to the target midpoint of 2%. The market is forecasting a rate increase in May following encouraging inflation numbers from the first quarter, with expectations for further price pressures in the second quarter as energy costs rise. Market participants are looking forward to a speech from RBNZ Governor Anna Breman later today for additional insights into policy direction.
