New Zealand Dollar slides closer to 0.5800 as Iran risks lift USD and counter hawkish RBNZ

The NZD/USD pair meets with a fresh supply during the Asian session on Friday and erodes a part of the previous day's solid recovery gains from over a two-month low. Spot prices, however, manage to hold above the 0.5800 mark and remain confined within a familiar range held since the beginning of this week.

The global risk sentiment got a strong boost after US President Donald Trump said on Thursday that a deal had been reached with Iran and the final document could be signed soon, perhaps even over the weekend. However, Iran countered that it had not reached a final decision on an agreement, capping the latest optimism. This, along with hawkish US Federal Reserve (Fed) bets, helps revive demand for the safe-haven US Dollar (USD), which, in turn, is seen as a key factor exerting some pressure on the NZD/USD pair.

The US Consumer Price Index (CPI) and Producer Price Index (PPI) released this week pointed to re-accelerating inflation. This reaffirmed market expectations that the US central bank will hike interest rates by the end of this year. The outlook, in turn, is seen as another factor underpinning the Greenback amid persistent geopolitical uncertainties. However, the Reserve Bank of New Zealand's (RBNZ) abrupt hawkish shift could act as a tailwind for the New Zealand Dollar (NZD) and limit losses for the NZD/USD pair.

The RBNZ's forecast strongly projects a 25 basis points (bps) rate increase at the upcoming July 8 meeting and indicated that the OCR could reach roughly 2.85% by the end of this year, implying up to three rate hikes. This makes it prudent to wait for strong follow-through selling before positioning for an extension of the recent pullback from the vicinity of the 0.6000 psychological mark, or the May monthly swing high. Traders now look to the University of Michigan's US Consumer Sentiment Index for a fresh impetus.