Both the New Zealand Dollar (NZD/USD) and the Euro (EUR/USD) traded in narrow ranges against the US Dollar during the Asian session on Tuesday, as market participants remained cautious ahead of key US inflation data and ongoing geopolitical tensions in the Middle East [1][2]. The NZD/USD pair hovered just below the 0.5900 mark, confined within a familiar range for over a week, while the EUR/USD pair held steady around the 1.1545-1.1550 area, close to its highest level since June 17 [1][2].
The immediate focus for traders is the upcoming release of the US Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday, which are expected to provide further guidance on the US Federal Reserve's policy outlook [1][2]. The recent disappointing US Nonfarm Payrolls (NFP) report has led investors to scale back expectations for an immediate Fed rate hike, but inflation risks—exacerbated by volatile oil prices due to the Iran war—continue to support the possibility of at least one rate hike by the end of the year [1][2]. Cleveland Fed President Beth Hammack commented that the current rate is not meaningfully restricting the economy and emphasized the need for some rate hikes, noting that delays could prolong the Fed's efforts to reach its 2% inflation target [2].
Geopolitical developments remain a key factor, with Iran ruling out negotiations with former President Trump and stating it will wait until the end of the current US President’s term on January 20, 2029, before resuming talks. This stance has dampened hopes for a swift reopening of the Strait of Hormuz, while the Iran-backed Houthis' naval blockade continues to choke traffic through the Bab el-Mandeb Strait, supporting higher crude oil prices and fueling inflation fears [1][2].
Strategists at BBH remain constructive on the New Zealand Dollar, citing above-target inflation, a favorable domestic growth outlook, and a policy rate near the lower end of the Reserve Bank of New Zealand’s (RBNZ) neutral range (2.20%-4.10%) as reasons for potential further RBNZ rate hikes. The swaps curve is pricing in nearly 100bps of cumulative tightening over the next twelve months to 3.50%, which could support the NZD [1]. Meanwhile, TD Securities notes that recent inflation dynamics are likely to keep the Fed focused on August inflation data ahead of the September meeting, with Thursday's PPI also being a key input into PCE estimates [2].
CONCLUSION
Markets are in a holding pattern as traders await crucial US inflation data and monitor ongoing geopolitical risks in the Middle East. While the US Dollar remains supported by safe-haven flows and inflation concerns, both the NZD and EUR are finding some support from domestic factors and central bank expectations. The upcoming CPI and PPI releases are expected to provide clearer direction for currency markets.