The US Treasury Department is expected to broaden the scope of secondary sanctions targeting countries and entities maintaining business ties with Iran, aiming to increase economic pressure on Tehran after nearly six months of conflict that has disrupted the Strait of Hormuz and Gulf energy exports [1][2]. According to Reuters, these new measures will allow the US to make activities in certain Iranian sectors subject to secondary sanctions, threatening affected companies with exclusion from the US Dollar-based financial system [1][2]. US Treasury Secretary Scott Bessent is scheduled to detail these measures, which the Trump administration has described as an 'economic D-Day' [1].
The announcement of expanded sanctions has contributed to heightened geopolitical uncertainty and risk aversion in global markets, an environment that is generally unfavorable for risk-sensitive currencies such as the New Zealand Dollar (NZD) and the Australian Dollar (AUD) [1][2]. The NZD/USD retreated to around 0.5960, down 0.25% on the day, following the release of weaker-than-expected New Zealand retail sales data, which contracted by 0.5% in the second quarter versus expectations for a 0.1% increase [1]. This marks the first contraction in nearly two years and suggests waning household consumption, potentially strengthening the case for a less hawkish stance from the Reserve Bank of New Zealand (RBNZ) [1].
Despite the negative domestic data, Brown Brothers Harriman notes that markets are already firmly positioned for further RBNZ tightening, with a 25 basis point hike to 2.75% virtually fully priced in for the next policy decision on September 2. The swaps curve implies 75 basis points of tightening to 3.25% over the next twelve months, reflecting above-target inflation and a policy rate near the lower end of the RBNZ’s neutral range (2.20%-4.10%) [1]. However, strategists caution that NZD/USD upside is limited as much of the tightening is already priced in [1].
Meanwhile, the AUD/USD is consolidating near the 0.7150 region, just below recent multi-month highs, as traders await the Reserve Bank of Australia (RBA) Minutes [2]. At its August meeting, the RBA left the cash rate target at 4.35% in a unanimous decision, with Governor Michele Bullock describing policy as 'restrictive and tight' and clarifying that a rate cut was not discussed [2]. Technical analysis indicates that AUD/USD retains a constructive bullish tone, with support at 0.7149 and resistance at 0.7158 and 0.7167 [2].
Both the NZD and AUD remain sensitive to global risk sentiment, with the prospect of tighter US sanctions on Iran and ongoing geopolitical tensions likely to keep risk aversion elevated in the near term [1][2].
CONCLUSION
The US move to broaden secondary sanctions on Iran has heightened geopolitical risk, pressuring risk-sensitive currencies like the NZD and AUD. While domestic factors such as weak New Zealand retail sales and a hawkish RBA stance also influence these currencies, the prevailing risk-off sentiment is likely to cap further gains in the near term.