NZD/USD Drops To Fresh Low Since April Vs Bullish USD Amid Hawkish Fed, Iran Uncertainty

• NZD/USD attracts sellers for the fourth straight day on Monday amid a broadly firmer USD.

• The Iran uncertainty and the hawkish Fed lift the USD back closer to an over one-year high.

• The PBOC rate decision and the RBNZ’s hawkish shift fail to lend any support to the Kiwi.

The NZD/USD pair drifts lower for the fourth consecutive day – also marking the sixth day of a negative move in the previous seven – and drops to its lowest level since April 8 during the first half of the European session on Monday. Spot prices currently trade around the 0.5725-0.5720 region and seem vulnerable to slide further amid the underlying bullish sentiment surrounding the US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, catches fresh bids following Friday's pullback from its highest level since May 2025 and draws support from a combination of factors. The US Federal Reserve (Fed) signaled last week that it will need to raise the policy rate if inflation remains sticky. Traders were quick to react and ramped up their bets that the US central bank will deliver at least one 25-basis-point (bps) rate hike in 2026. This, along with geopolitical uncertainties, benefits the buck.

In the latest developments, Iran accused the US and Israel of violating the ceasefire and announced that it had again closed the Strait of Hormuz, citing the continued Israeli strikes in Lebanon. Adding to this, US President Donald Trump threatened fresh military action against Iran if Hezbollah continued attacks on Israel. This underscores the fragility of the diplomatic process and keeps the geopolitical risk premium in play, tempering investors' appetite for perceived riskier assets and driving safe-haven flows towards the Greenback.

This, to a larger extent, counters the Reserve Bank of New Zealand's (RBNZ) hawkish shift and suggests that the path of least resistance for the NZD/USD pair remains to the downside. In fact, the RBNZ indicated that the OCR could reach roughly 2.85% by the end of this year, implying up to three rate hikes. Meanwhile, the People’s Bank of China (PBOC) left the one-year and the five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively. The announcement, however, does little to lend any support to the currency pair.