The US Dollar (USD) extended its rally across major currency pairs on Tuesday, driven by heightened safe-haven demand amid escalating geopolitical tensions, particularly between the US and Iran, and surging crude oil prices. The New Zealand Dollar (NZD/USD) fell for the second consecutive day, trading around 0.5880, as investors shifted towards the USD following Iran's announcement that it would not negotiate with US President Donald Trump and would wait until his term ends on January 20, 2029, to resume talks. This development, coupled with a sharp rally in crude oil, pushed US Treasury yields higher and increased market expectations for a Federal Reserve (Fed) rate hike in September, with the CME FedWatch Tool showing a 52% probability, up from 44.4% the previous day [1][3].
The Japanese Yen (JPY) also weakened, with USD/JPY climbing to the 159.25-159.30 region, near a one-and-a-half-week high. The JPY's decline was attributed to Japan's record fiscal year 2026 budget of ¥122.3 trillion, the wide US-Japan interest rate gap, and fading effects from recent joint US-Japan FX intervention. Analysts at OCBC noted that the intervention, while significant, has not fully reversed JPY weakness, and they maintain an end-2026 USD/JPY forecast of 163. However, they suggest that a more aggressive Bank of Japan (BoJ) hiking path and domestic capital flows could support a sustained JPY recovery. Markets are currently pricing around a 60% probability of a BoJ rate hike in September, with further USD/JPY gains possible if the BoJ holds rates steady [2][4].
The Swiss Franc (CHF) also depreciated, with USD/CHF trading around 0.8110, as the USD benefited from safe-haven flows and rising oil prices. Despite global energy price shocks, Swiss inflation cooled to a four-month low of 0.4% year-over-year in July, defying Swiss National Bank (SNB) expectations for a minor uptick. The SNB is widely expected to keep rates on hold through year-end, with additional cuts seen as a fallback option. OCBC analysts commented that the USD is likely to remain range-bound unless US inflation surprises to the upside, and that carry trades should remain supported despite oil market volatility [3].
Across all markets, the upcoming US inflation data—Consumer Price Index (CPI) and Producer Price Index (PPI)—are seen as pivotal for determining the Fed's next moves. Cleveland Fed President Beth Hammack emphasized the need for multiple rate hikes to control inflation, highlighting the CPI report as a crucial test for the Fed's policy trajectory [1][3]. In New Zealand, rising oil prices have sparked debate on the Reserve Bank of New Zealand's (RBNZ) September policy stance, with markets awaiting third-quarter inflation expectations after an unexpected Q2 acceleration [1].
Technical analysis for USD/JPY indicates a bullish near-term tone, with resistance at 159.62 and further upside potential if this level is breached. Support is seen at 158.58 and 157.29, with a deeper pullback possible toward 155.21 [2].
CONCLUSION
The US Dollar's broad-based strength, fueled by geopolitical tensions and rising rate hike expectations, has pressured the New Zealand Dollar, Japanese Yen, and Swiss Franc. Market participants are closely watching upcoming US inflation data and central bank policy decisions, which are likely to drive further volatility and determine the next direction for major currency pairs.