The New Zealand Dollar (NZD) plunged sharply against the US Dollar (USD) on Friday, with the NZD/USD pair falling close to the key 0.6000 psychological level, as escalating tensions in the Middle East rattled global markets and boosted demand for safe-haven assets.
The pair slipped nearly 0.1% intraday, making the Kiwi the worst-performing major currency of the day amid fears of broader geopolitical fallout from Israel’s surprise strikes on Iran.
Geopolitical Fears Hit Risk Appetite
Early Friday, Israel rattled markets after launching Operation Rising Lion targeting military and nuclear sites in north-eastern Tehran. Israeli Prime Minister Benjamin Netanyahu characterized the action as a pre-emptive strike to “roll back the Iranian threat to Israel’s existence.”
Risk-sensitive currencies such as the NZD and the AUD came under extensive selling pressure while investors moved into risk-off safe havens such as the US Dollar, Japanese Yen, and Swiss Franc.
The US Dollar Index (DXY) bounced back to 98.30, coming back from a three-year low of 97.60, posted only the day before, especially given a highly volatile week of uncertainty in U.S. tariffs policies.
RBNZ Expected to Cut Rates in July
Adding to the NZD’s woes, domestic pressures increased after RBNZ rate cut speculation grew, with chances high of further cuts in July. Since August 2024 the RBNZ has cut rates by 225 basis points, with the OCR now at 2.25%. The cuts have been in line with an expansionary monetary policy aimed at supporting growth, despite demand conditions continuing to weaken.
With inflation moderating and risks growing on the global front, traders took the risk of betting on the RBNZ possibly easing even further, particularly given concerns about global factors, as New Zealand’s export-driven economy is inherently vulnerable.
Outlook: 0.6000 Support in Focus
Traders are keeping a close eye on the 0.6000 support level for NZD/USD, as a break below it could lead to further losses toward 0.5950 and 0.5900. The pair’s near-term direction will likely depend on geopolitical developments, such as any Iranian retaliation or regional tensions, as well as updated guidance from the RBNZ before July and potential shifts in U.S. trade and fiscal policy under former President Trump.
In the meantime, safe-haven demand has taken the lead, putting pressure on risk-sensitive assets and high-beta currencies like the New Zealand Dollar, which remain vulnerable amid ongoing global uncertainty.
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