New Zealand Dollar Remains Vulnerable

The New Zealand dollar rose to $0.572 but remained near its lowest level since November 2025, as investors monitored the intensifying Middle East conflict and awaited the Reserve Bank's upcoming policy decision. President Donald Trump set a new deadline for Iran to reopen the Strait of Hormuz, warning that the US would target the country’s power plants and civilian infrastructure if it refuses to comply. Tehran rejected the proposal and threatened retaliatory strikes on comparable US-linked assets. Meanwhile, the Reserve Bank of New Zealand is widely expected to keep the official cash rate unchanged at 2.25% later this week as it weighed inflation concerns and the economic strain from surging energy prices. Governor Anna Breman recently signaled that the central bank may look through temporary energy-driven inflation but could hike rates if long-term inflation expectations are threatened.

The New Zealand dollar fell to $0.570, hitting its lowest level since November 2025, as expectations for a swift resolution to the Middle East conflict waned. US President Donald Trump, in a prime-time address on Thursday, 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 Reserve Bank of New Zealand 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 kiwi has fallen 0.6% so far this week and is on track for its second consecutive weekly decline.

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.