New Zealand Dollar extends decline as Fed tightening expectations support US Dollar

NZD/USD trades around 0.5740 at the time of writing on Friday, down 0.28% on the day, as the US Dollar (USD) continues to benefit from expectations of a restrictive monetary policy stance in the United States (US). The pair is on track for a third consecutive daily decline and remains near its lowest levels since April.

Market sentiment received some support late in the week after Reuters reported, citing a senior US official, that Israel and Hezbollah agreed to a ceasefire effective from Friday afternoon. According to the official, US and Qatari negotiators helped broker the agreement with assistance from Iran. The development temporarily eases fears of further regional escalation and supports a modest improvement in risk appetite.

However, the impact of the announcement on currency markets remains limited. Investors continue to favor the US Dollar, which is supported by the hawkish stance of the Federal Reserve (Fed). Projections released this week showed that policymakers now expect the Federal Funds Rate to reach 3.8% by the end of the year, up from 3.4% in the March forecasts, reinforcing expectations of another rate hike in the coming months.

Moreover, geopolitical uncertainty has not fully disappeared. CNN reported that US Vice President JD Vance canceled his planned trip for talks with Iran in Switzerland, maintaining a degree of caution among investors despite the ceasefire announcement. However, Iran confirmed that the agreement with the US to end the war had been signed digitally, making Friday’s meeting in Switzerland no longer urgent.

On the New Zealand side, the New Zealand Dollar (NZD) is finding limited support from the outlook for the Reserve Bank of New Zealand (RBNZ). The central bank recently indicated that its Official Cash Rate could reach around 2.85% by the end of the year, implying the possibility of several additional rate hikes. This outlook is helping to limit losses for the Kiwi against the US Dollar, although the current market dynamic remains dominated by broad-based Greenback strength.