New Zealand Dollar Holds Advance

The New Zealand dollar held on to its recent gains, trading around $0.586 on Tuesday, its highest level in over three weeks, amid expectations that US–Iran talks could resume following unsuccessful discussions over the weekend in Pakistan. President Donald Trump said that Iran had called about making a deal, even as a US blockade of Iranian ports came into effect. Separately, Iranian President Masoud Pezeshkian stated that the country is prepared to continue negotiations within the framework of international law. Meanwhile, the Reserve Bank of New Zealand kept its cash rate unchanged last week while signaling readiness to tighten policy if core inflation accelerates amid rising fuel prices linked to the Middle East conflict. Governor Anna Breman noted that if medium-term inflation begins to pick up, the central bank would respond decisively with rate hikes. Traders assign a 38% probability of a rate hike in May, with a move by July now fully priced in.

The New Zealand dollar fell to $0.582 on Monday, extending its retreat from a three-week high, as investor appetite for risk assets weakened after US-Iran talks failed and Washington moved toward restricting Iranian port traffic. The US military announced it would begin a blockade of all Iranian ports at 1400 GMT on Monday, but will allow ships not traveling to or from Iran to pass through the Strait of Hormuz. Meanwhile, the Reserve Bank of New Zealand kept its cash rate unchanged last week, while signaling a readiness to raise interest rates if core inflation accelerates amid rising fuel prices linked to the Middle East conflict. Governor Anna Breman noted that although the central bank expects somewhat softer economic growth, medium-term inflation pressures remain a key concern. She emphasized that if inflationary pressures build, the RBNZ would respond decisively with rate hikes. Markets are currently pricing in more than an 80% probability of a rate increase as early as July.

The New Zealand dollar edged down to $0.584 but stayed close to its highest level in over two weeks, after the Reserve Bank signaled readiness to raise interest rates if core inflation accelerates. Governor Anna Breman noted that while the central bank expects somewhat weaker economic growth, medium-term inflation pressures remain a concern. She emphasized that if medium-term inflation begins to pick up, the RBNZ will act decisively and that means rate increases. The central bank held its cash rate steady at 2.25% for the second consecutive time on Wednesday, reaffirming its commitment to returning inflation to the midpoint of the 1-3% target range. Markets are currently pricing in more than an 80% probability of a rate hike as early as July, with expectations for rates to reach 3% by year-end. Meanwhile, investors remained cautious as the two-week ceasefire in the Middle East conflict looked in peril following Israeli strikes in Lebanon.