Both the Australian Dollar (AUD) and New Zealand Dollar (NZD) declined against the US Dollar (USD) on Tuesday, as renewed geopolitical tensions between the United States and Iran drove risk aversion and bolstered demand for the Greenback [1][2]. The AUD/USD pair slipped from two-month highs, trading just below 0.7100 after reaching 0.7119 earlier in the session, with the move attributed primarily to geopolitical developments rather than domestic Australian data [1]. Similarly, NZD/USD retreated to around 0.5880, down 0.38% on the day, as market sentiment soured on escalating US-Iran tensions [2].
The immediate catalyst was the expiration of a memorandum of understanding between the US and Iran, with Iranian officials declaring the Strait of Hormuz would remain closed until the US lifts its naval blockade, removes oil sanctions, releases frozen assets, and halts military operations [1]. US President Donald Trump stated he is not seeking an extension of the deal and emphasized the continuation of the naval blockade, further heightening concerns about a potential escalation [1][2]. Additionally, a UK Maritime Trade Operations agency reported that a vessel was struck by an "unknown projectile" in the Strait, injuring a crew member and damaging the engine room [1].
Despite the risk-off environment, the US Dollar's gains may be capped by diminishing expectations for further Federal Reserve rate hikes. The CME FedWatch tool indicates that markets now price in a 35% chance of a rate hike at the Fed’s next meeting, down from 47% a month earlier, following weaker-than-expected July US Nonfarm Payrolls and moderate inflation data [2]. Investors are awaiting the Federal Open Market Committee (FOMC) Minutes for further policy clues, which could introduce additional volatility [2].
On the New Zealand side, expectations that the Reserve Bank of New Zealand (RBNZ) could raise its policy rate by 25 basis points at next month’s meeting are providing some support for the Kiwi [2]. BNY Mellon analysts highlight strong foreign demand for New Zealand government bonds, with nonresident holdings rising both in percentage and nominal terms in July [2]. However, BNY Mellon questions the market's pricing for two more RBNZ hikes by year-end, citing stable inflation expectations and robust domestic activity [2].
Technical analysis for AUD/USD shows the pair holding a mildly bullish bias above key moving averages, with immediate resistance at 0.7098 and support at 0.7092 and 0.7038 [1]. For NZD/USD, the downside is being cushioned by RBNZ hike expectations and foreign inflows, despite the broader risk-off tone [2].
CONCLUSION
Geopolitical tensions in the Strait of Hormuz have triggered risk aversion, pressuring both the Australian and New Zealand Dollars while supporting the US Dollar. However, expectations of limited further Fed tightening and potential RBNZ rate hikes are helping to cushion losses for the antipodean currencies. Market participants are closely watching upcoming FOMC Minutes and central bank signals for further direction.