The New Zealand dollar to US dollar exchange rate dropped over 4%, and the New Zealand dollar weakened against all key currencies during March due to the impact of the US-Iran conflict on financial markets, according to a Wednesday report by the Bank of New Zealand (BNZ).

The bank said the exchange rate risk remains skewed to the downside for as long as the Strait of Hormuz remains closed and the key 0.55 support level is threatened, though the pair could recover sharply when the strait reopens, or the conflict ends, but is unlikely to match pre-conflict levels for a while, with a March range of 0.57 to 0.5995.

For NZD/AUD, BNZ said it is not convinced the low has been reached for this cycle, particularly if the Reserve Bank of Australia keeps hiking rates while the Reserve Bank of New Zealand remains on the sidelines. Australia is seen as more exposed to the hit to Asia and the global economy than New Zealand, with an Australian dollar to US dollar exchange rate of 0.8230 to 0.8455 in March, the report added.