Kiwi Dollar Under Pressure as Potential Rate Cut Looms

The New Zealand dollar fell to $0.571, ending a two day-gain as expectations for a swift resolution to the Middle East conflict waned. US President Donald Trump, in a prime-time address, offered little clarity on the path to ending the war he claimed would conclude soon, while warning that US forces could continue operations in Iran for the next two to three weeks. The RBNZ recently warned that rising oil prices, driven by the conflict, could push inflation higher and weigh on household spending. Governor Anna Breman noted that the central bank would look through short-term inflationary impacts but signaled that persistent energy-driven inflation could prompt future rate hikes. The central bank is expected to stand pat at its meeting next week, with the probability of a May rate hike falling sharply to 25% from 60% last week.

The New Zealand dollar rose to $0.576, extending its rebound from a four-month low as sentiment improved after the US indicated that the Middle East could end soon. President Trump said the US military operations in Iran could conclude within two or three weeks, with or without an agreement, adding that Washington has achieved its objectives. The conflict has upended global markets, raising fears of a spike in inflation and a slowdown in economic activity. The RBNZ recently warned that surging oil prices driven by the conflict risks pushing inflation higher and eroding household spending. Governor Anna Breman said that the RBNZ will look through temporary, energy-driven inflation spikes but signaled that interest rates could rise if price pressures begin to threaten longer-term inflation expectations. The RBNZ is widely expected to hold rates steady next week, while the probability of a rate hike in May has fallen to 25% from 60% at the end of last week.

The New Zealand dollar slipped to $0.573, hovering near a four-month low as concerns about a prolonged energy shock from the Middle East conflict continued to weigh on the economic outlook. The Reserve Bank of New Zealand has warned that the country is vulnerable to surging oil prices, which are expected to push inflation higher while eroding household spending power. Governor Anna Breman said that the RBNZ will look through temporary, energy-driven spikes in inflation but signaled that interest rates could rise if price pressures begin to threaten longer-term inflation expectations. The RBNZ is expected to hold rates steady next week, while the probability of a rate hike in May fell to 25% from 60% at the end of last week. On the data front, New Zealand’s business sentiment for March dropped to its weakest level since mid-2024, when the country was in recession, as the war dampened confidence in future earnings and investment. The kiwi dollar fell 4.1% in March amid the uncertainty.