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The New Zealand dollar was a major beneficiary of another 'risk-on' market pulse that followed Donald Trump's confirmation that peace talks were likely to resume in Pakistan.
The Kiwi's advance means the Pound-New Zealand dollar pair is set for a third consecutive daily decline and the charts suggest a move to the 200-day moving average at 2.2948 is likely shortly.
Although this major moving average might offer some support, we wouldn't be surprised to watch short-term dips reach as far as 2.29, which is close to both the 200-day MA and the 61.8% Fibonacci retracement of the January-February slides.
The targets are in contention thanks to a renewed pulse of NZD buying that has a universal flavour to it: investors are looking forward to the eventual reopening of the Strait of Hormuz in the Persian Gulf.
Like many fuel importers, New Zealand has suffered surging fuel costs that have threatened to diminish economic growth prospects while boosting inflation; the big losers of the conflict can look forward to handsome recoveries once the conflict ends.
"NZD/USD recorded the strongest advance to 0.5913, leading G10 gains alongside AUD/USD (+0.79% to 0.7137). Commodity currencies rallied on a 'risk-on' sentiment," says a daily note from investment bank Natixis. "Risk appetite rebounded as renewed optimism over peace talks between the United States and Iran triggered a broad recovery across asset classes."
U.S. President Donald Trump indicated he may be preparing to wind down the war with Iran, boosting market optimism and restoring some stability to global energy prices.
Peace talks with the Islamic Republic might restart “over the next two days,” and Trump said he sees the war as "close to over."
"The market balanced hopes for renewed US-Iran negotiations against ongoing supply disruptions from the blockade of the Strait of Hormuz. President Trump indicated talks could resume within days, raising optimism for a ceasefire," says Soojin Kim, Analyst at MUFG Bank in Dubai.
Trump told the New York Post in a phone interview that discussions were "happening, but, you know, a little bit slow", adding that a second round of direct negotiations could happen somewhere in Europe.
The Post says Trump then phoned back, with an update:
"You should stay there, really, because something could be happening over the next two days, and we’re more inclined to go there," he said of talks continuing in Islamabad, Pakistan. "It’s more likely, you know why? Because the field marshal is doing a great job."
Expect market optimism to remain supportive of the Kiwi dollar in the run-up to talks.
Risks are that Trump looks to pressure Iran with further escalation rhetoric, but it's clear that any such moves would be just that: a negotiating ploy.