The US Dollar (USD) has come under renewed selling pressure amid growing optimism for a peaceful resolution to the conflict involving Iran, as well as softer-than-expected US inflation data. President Donald Trump’s comments about the war being 'close to over' and the possibility of resuming peace talks have lifted risk assets and pushed US equities above pre-conflict levels, according to MUFG’s Derek Halpenny [1]. US Vice President JD Vance also indicated ongoing negotiations, fueling hopes for a broader agreement that could reintegrate Iran into the global economy [2]. However, the US military has affirmed the full implementation of the Strait of Hormuz blockade, condemned by Iranian authorities, and the US administration reportedly plans to send thousands of additional troops to the Middle East to pressure Tehran [3].
Investor positioning data shows a shift, with broad-based US dollar buying following the conflict now reversing as investors begin to capitulate on long Dollar trades. The US dollar index non-commercial futures position has turned from net short to net long, with the latest long dollar position the largest since before the Liberation Day tariff announcements in April last year [1]. The US Dollar Index (DXY) trades around 98.25, close to its lowest levels since early March, stabilizing after seven consecutive days of decline as investors trim long USD positions [2]. USD/CAD bounced up to 1.3775 from Tuesday’s lows near 1.3730, but remains more than 1% below last week’s highs [3]. NZD/USD holds near a one-month high at 0.5900, consolidating after two strong bullish days [2].
Foreign demand for US Treasuries has weakened, with Fed custody holdings of USTs held by foreign accounts falling by USD 101bn over a seven-week period, the largest drop since the COVID crisis [1]. Private foreign investors have sold US Treasuries in three of the last four months, and foreign investor buying on a 6-month sum basis was the weakest in January since October 2021 [1]. The US Treasury is set to release cross-border flow data (TIC) for February, with recent data showing easing demand for US Treasuries [1].
Macroeconomic data further weighs on the Dollar. The US Producer Price Index (PPI) for March showed a smaller-than-expected increase, suggesting inflationary pressures linked to rising energy prices remain contained [2][3]. This downside surprise reduces the likelihood of a near-term tightening move from the Federal Reserve, providing leeway for the Fed to keep interest rates unchanged in April [2][3]. Lower US Treasury yields have diminished the appeal of the Dollar and supported risk-sensitive currencies such as the New Zealand Dollar [2].
In New Zealand, Reserve Bank of New Zealand (RBNZ) officials' comments have not provided a clear signal on future monetary policy, and investors are awaiting China’s first-quarter GDP data, which could influence regional sentiment and the outlook for the Kiwi [2].
CONCLUSION
The US Dollar is facing significant downward pressure due to optimism around peace talks with Iran and softer US inflation data, prompting investors to unwind long Dollar positions. Weakening foreign demand for US Treasuries and lower yields further undermine the Dollar’s appeal, while risk-sensitive currencies like NZD benefit. Market sentiment remains cautious, with attention focused on upcoming macroeconomic releases and ongoing geopolitical developments.