NZD/USD traded around 0.5840 on Monday, up 0.17% on the day, as broad US Dollar weakness followed reports of a framework agreement between the US and Iran. Risk appetite improved after Donald Trump said the Strait of Hormuz would be reopened, while Iranian authorities confirmed the move and officials pointed to a memorandum of understanding due to be signed in Switzerland on Friday. US media also reported the ceasefire in place since April would be extended to allow further talks.
The softer tone left the US Dollar Index (DXY) drifting towards 99.50, while Crude Oil sold off; West Texas Intermediate (WTI) fell by nearly 5% on expectations of more normal global energy flows once the strait reopens. In New Zealand, BusinessNZ’s Performance of Services Index slipped to 47.5 in May from a revised 48.7, a fourth straight month in contraction, and the Composite Index eased to 48.4, its lowest level since June 2025. Attention now shifts to the Federal Reserve meeting on Wednesday, with markets focused on updated projections and rate guidance.
Outlook For The US Dollar And Commodity Currencies
Given the recent geopolitical de-escalation, we see the US Dollar’s sharp pullback from its recent highs above 105 as a key trading signal for the coming weeks. This creates a clear risk-on environment, weakening the dollar and benefiting commodity currencies. The primary move is to position for continued, albeit volatile, US dollar weakness.
NZD/USD Positioning And Market Strategy
The New Zealand dollar is rallying against the greenback despite our own economy’s struggles. New Zealand’s latest BusinessNZ Performance of Services Index for May 2026 confirmed a contraction at 47.1, and first-quarter GDP growth was nearly flat. However, the powerful downdraft in the US dollar is overpowering these domestic concerns for now.
The sharp 5% drop in WTI crude oil, now trading near $81 a barrel, is a critical factor supporting this trend. We believe this fall in energy prices reduces headline inflation fears, giving the Federal Reserve more reason to maintain a neutral stance this Wednesday. This pattern is reminiscent of late 2022, when a similar drop in energy costs preceded a more dovish Fed policy pivot.
With this backdrop, we are positioning through derivative markets by buying short-dated NZD/USD call options. This strategy allows us to capitalize on further upside in the currency pair driven by US dollar weakness. It also clearly defines our maximum risk ahead of the Federal Reserve’s updated economic projections this week.
