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War fears put the NZD sharply lower, but news of economic growth will provide some cheer.
The U.S. has said it is ready to strike Iran unless it completely abandons its nuclear programme, something Iran has vowed it would not do.
Developments point to elevated geopolitical risks, and stock markets are bleeding value. The New Zealand Dollar is positively correlated with stocks, meaning the drawdown is weighing heavily.
The New Zealand-U.S. Dollar exchange rate is lower by 0.80% on the day at 0.5981, the Pound to New Zealand Dollar exchange rate is higher by 0.78% at 2.2435, and the Euro to New Zealand Dollar exchange rate is up 0.65% at 1.9174.
For markets, the key issue here is oil and how Iran will respond in the Strait of Hormuz. This is the chokepoint between the Saudi peninsula and Iran, where Iran could flex some muscle by halting shipping.
Given that significant amounts of oil flow from the Middle East to global markets through this passage, markets are wary, and oil prices are elevated.
Above: Brent crude oil prices have surged.
External drivers are therefore at the forefront, but NZD will take cheer from news the economy expanded by a bigger margin than was expected in the first quarter.
New Zealand GDP for Q1 2025 grew 0.8% on a quarterly basis in the first quarter of the year, above market expectations for 0.7% and ahead of the Reserve Bank of New Zealand's (RBNZ) 0.4% forecast.
Given the stronger GDP data, economists at ASB expect the RBNZ to keep rates on hold in July.
"Robust business services and manufacturing drove growth. Kiwi spending looks less shy, with demand for experiential services apparent (but not travel though). Government spending is still contributing a lot to growth," says Wesley Tanuvasa, Economist at ASB in Auckland.
The positive outcome in the annual figure masks a difficult year for New Zealand, with the annual rate showing the economy contracted 0.7% in the year to the first quarter.
The RBNZ has slashed rates in response to the economic contraction, and signs of growth and the prospect of more benign inflation mean it can now consider a pause.
"Stronger GDP means the RBNZ has scope to pause in July – we think the Bank will," says Tanuvasa.
Such a development means interest rates turn from a headwind to a tailwind for the NZ Dollar, pointing to a more forceful recovery in H2, provided the Iran-Israel conflict dies down and President Donald Trump waters down his tariff agenda.