The US Dollar Index (DXY) declined to near 99.50 during Asian trading hours on Wednesday, extending its losses amid growing optimism about a potential peace deal between the US and Iran. This optimism has undermined the safe-haven appeal of the US Dollar ahead of the US Federal Reserve's (Fed) interest rate decision later in the day [1]. US Vice President JD Vance stated that President Donald Trump may release a preliminary deal to end the war with Iran before Friday, following Trump's announcement that the agreement had already been signed. Trump also indicated that the Strait of Hormuz would be open by Friday and that the full text of the peace deal would be released in a formal setting. The Swiss foreign ministry confirmed that the US-Iran deal aimed at ending the Middle East war will be signed at Switzerland’s Burgenstock resort on Friday [1].
The Federal Reserve is expected to keep its benchmark rate in the range of 3.50% to 3.75% as it assesses the economic impact of the war’s energy-price shock [1][2]. Markets are now pricing in a 64% chance of a US central bank interest rate hike in December, down from 69% last week, according to the CME FedWatch tool [1]. The focus will also be on new Fed Chairman Kevin Warsh and his comments during the post-decision press conference, as any hawkish tone could provide near-term support for the DXY [1][2].
Meanwhile, the New Zealand Dollar (NZD) maintained a positive bias for the second consecutive day, with the NZD/USD pair trading below the mid-0.5800s during the Asian session. This strength is attributed to both the weakening USD and domestic factors. Statistics New Zealand reported that the seasonally adjusted current account deficit narrowed to NZ$1.01 billion in the March quarter, down from a downwardly revised NZ$5.64 billion in the previous quarter [2]. Additionally, the Reserve Bank of New Zealand (RBNZ) has adopted a hawkish stance, projecting a 25 basis point rate increase at its upcoming July 8 meeting and indicating that the Official Cash Rate (OCR) could reach approximately 2.85% by year-end, implying up to three rate hikes [2].
Traders remain cautious ahead of the Fed's policy announcement, with the outcome and updated economic projections, including the dot plot and comments from Chairman Warsh, expected to provide further direction for both the USD and NZD/USD pair [2].
CONCLUSION
Optimism over a US-Iran peace deal has weakened the US Dollar, while the New Zealand Dollar is supported by a narrowing current account deficit and a hawkish RBNZ outlook. Market participants are now focused on the upcoming Federal Reserve decision and Chairman Warsh's comments for further cues on currency direction.