A wave of US strikes against Iran has triggered heightened risk-off sentiment in global currency markets, impacting the New Zealand Dollar (NZD), Australian Dollar (AUD), and Euro (EUR) against the US Dollar (USD) [1][2][3]. The NZD/USD pair declined to around 0.5840 during the early European session on Friday, as escalating tensions in the Middle East weighed on riskier assets. Iranian officials reported that civilian infrastructure, including power facilities and a train station in Bandar Abbas, was hit, and the Iranian Islamic Revolutionary Guards Corps (IRGC) threatened to halt oil and gas exports through the Strait of Hormuz if US attacks continue [1]. The IRGC also claimed attacks on US command centers in Syria and maritime surveillance radar in Oman [1].
The AUD/USD pair traded marginally lower at around 0.6990, with the US Dollar Index (DXY) up 0.1% to near 100.80. Fears of a resurgence in US inflation, prompted by elevated energy prices amid continued aggression in the Middle East, contributed to the Greenback's strength. Iran has threatened to close the Red Sea if US strikes continue, and US President Donald Trump threatened to attack Iranian bridges and power plants if Tehran does not return to negotiations [2]. Technical analysis suggests AUD/USD maintains a mildly bullish near-term bias above the 20-day EMA at 0.6969, with immediate support at 0.6913 and resistance at 0.7042 [2].
Commerzbank's Volkmar Baur commented that EUR/USD is struggling for clear direction as the Iran conflict, oil prices, and diverging inflation dynamics cloud the outlook. He noted a strong correlation between oil prices and ECB rate expectations, while the Fed faces falling inflation and AI-driven productivity hopes. With ECB and Fed meetings scheduled in the next two weeks, Baur expects EUR/USD to remain in a sideways trend, as it is too early for the ECB to lock in another rate hike or for the Fed to adopt a more dovish tone [3].
On the New Zealand front, a hawkish Reserve Bank of New Zealand (RBNZ) stance could help limit losses for the Kiwi. Last week, the RBNZ raised its Official Cash Rate (OCR) by 25 basis points to 2.50% and hinted at further hikes due to persistent inflation risks. RBNZ chief economist Conway stated that the Middle East conflict has complicated monetary policy, pointing to upside risks for the September quarter forecast [1].
CONCLUSION
The US-Iran conflict has led to increased volatility and risk aversion in currency markets, strengthening the US Dollar and pressuring risk-sensitive currencies like NZD and AUD. Oil price movements and inflation concerns are influencing central bank outlooks, with analysts expecting sideways trading for EUR/USD ahead of upcoming ECB and Fed meetings. The market remains cautious, awaiting further geopolitical and economic developments.