The NZD/USD pair gathers strength to near 0.5910 during the Asian trading hours on Friday. The potential upside might be limited amid the ongoing conflict in the Middle East. The US employment report for February will be the highlight later on Friday.
Iran has retaliated by firing missiles and drones across the Gulf region, striking oil facilities and US assets in several countries. The conflict has spilled over into neighboring countries, the United Arab Emirates, Bahrain, Qatar, Lebanon and Kuwait. US President Donald Trump said that Iranian officials reached out to him in an attempt to reach an agreement to end the war, but he insisted it was too late and that the US is pushing to completely destroy Iran.
Signs of a prolonged conflict in the Middle East trigger a “flight to safety,” which could boost the US Dollar and create a headwind for the pair.
Furthermore, a dovish tone from the Reserve Bank of New Zealand (RBNZ) could undermine the Kiwi. The New Zealand central bank held rates steady at its February meeting and signaled an accommodative stance, with markets pricing in a low probability of hikes until late 2026.
Traders will take more cues from the US February employment data on Friday. This report could offer some clues about the interest rate path. Analysts expect to see 59,000 jobs added in the US economy in February, while the Unemployment Rate is projected to hold steady at 4.3% during the same period. In case of weaker-than-expected outcomes, this could drag the Greenback lower against the New Zealand Dollar (NZD).
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
