New Zealand dollar rebounds as US and Iran step back from brink

Mourners attend a funeral ceremony for Iranian Gen. Qassem Soleimani and his comrades, who were killed in Iraq in a U.S. drone strike on Friday, in the city of Kerman, Iran, Tuesday, Jan. 7, 2020. The

The New Zealand dollar rebounded from a two-week low on signs the US and Iran may be trying to de-escalate their dispute after the Islamic republic launched missile attacks on two US bases in Iraq earlier today.

The kiwi rose early this afternoon after Iran's Foreign Minister Mohammad Javad Zarif said the attacks were a "proportionate" response to the US killing of Iranian General Qassem Soleimani in a drone strike in Iraq on Friday.

"We do not seek escalation or war, but will defend ourselves against any aggression," Zarif said on Twitter. There were no initial reports of casualties and US President Donald Trump later tweeted that "all is well" and that a formal statement would follow overnight.

The kiwi had fallen as low as 66.17 US cents earlier today after Iran launched missile attacks against US bases at al-Assad and Erbil in Iraq. It was trading at 66.43 cents at 5pm from 66.73 cents the same time yesterday. The trade-weighted index was at 72.87 from 73.04 yesterday.

"The White House is effectively buying itself a bit of time to think about what it is going to do next," said Mitchell McIntyre, a dealer at XE.

"I wouldn't be getting too comfortable with any of this at the moment. Another leg of this 'risk-off' sentiment is definitely possible."

Markets have been jittery about potential Iranian retaliation since the US killed Soleimani, head of the Revolutionary Guards' elite Quds Force, and Iraqi militia leaders in a targeted attack on Friday.

The kiwi opened weaker today despite the Global Dairy Trade index rising 2.8 per cent overnight, having fallen 5.1 per cent at the last auction three weeks ago. Prices for whole and skim milk powder - key commodities for the country - rebounded sharply.

McIntyre said Iran's retaliatory strike today saw risk currencies like the kiwi and Aussie sold off while gold, oil and the yen went "through the roof".

The kiwi was trading at 96.63 Australian cents at 5pm, from 96.21 cents late yesterday, and at 72.87 yen from 72.38.

Brent crude for March delivery jumped briefly to US$71.11 a barrel today – its highest since May - and was recently at US$69.37.

Spot gold also briefly climbed above US$1610 an ounce. It was recently trading at US$1590.19.

McIntyre said the kiwi has good support around 66.30-66.40 cents but trading will be driven by international headlines and "whatever the next bit of information is that comes down the pipe".

"Everybody is going to be sitting on their hands."

The kiwi was at 50.57 British pence from 50.65 late yesterday, at 59.54 euro cents from 59.62, and at 4.6128 Chinese yuan from 4.6406.

The two-year swap rates fell to a bid price of 1.1637 per cent from 1.1723, while 10-year swaps fell to 1.61 per cent from 1.6400.

BusinessDesk