Kiwi Dollar Holds Losses

The New Zealand dollar rose to $0.591, marking a second consecutive session of gains, as investors digested the labor market report. The unemployment rate ticked down to 5.3% in the first quarter from 5.4% in the previous quarter, slightly below market expectations of 5.4%. Meanwhile, employment increased by just 0.2% over the quarter, missing the 0.3% forecast. The war in the Middle East has weighed heavily on business confidence, leading firms to scale back investment and hiring. Other details in the report also point to ample spare capacity in the market and subdued wage growth. Markets are pricing in only a 35% chance of a rate hike later this month, but an increase in July is still fully priced in. The Reserve Bank of New Zealand held its cash rate steady in April but signaled that any signs of significant second-round inflationary effects or a rise in medium-term inflation expectations would warrant decisive and timely rate hikes.

The New Zealand dollar traded around $0.587, holding onto its recent losses as traders assessed developments in the Middle East. The US and Iran exchanged fire in the Persian Gulf on Monday, with the UAE also drawn into the situation, raising fresh doubts over the stability of a four-week ceasefire. The escalation followed President Donald Trump’s announcement of a plan to restore transit through the Strait of Hormuz and assist stranded vessels in exiting the region. Meanwhile, investors are now turning their attention to New Zealand’s first-quarter jobs report due on Wednesday for fresh clues on the economy’s health amid the energy shock from the Middle East conflict. RBNZ board member Prasanna Gai said that the model of the Strait of Hormuz disruption does not suggest a reflexive tightening bias, although it has raised the neutral rate.

The New Zealand dollar rose to $0.591, reaching a more-than two-week high amid a mild risk-on sentiment after President Donald Trump said the US would begin guiding neutral ships out of the blocked Strait of Hormuz. Trump also stated that representatives were engaged in “very positive” talks with Iran. However, the absence of concrete details has kept markets cautious. On the policy front, expectations for further tightening by the Reserve Bank of New Zealand remain in place, though investors scaled back bets on a rate hike in May after Governor Anna Breman said that first-quarter core inflation measures remained stable within the central bank’s target band. Traders now see less than a 30% probability of a rate increase in May, down from over 60% a week earlier, while a move in July is still fully priced in. Meanwhile, RBNZ board member Prasanna Gai said that the model of the Strait of Hormuz shock does not suggest a reflexive tightening bias, although it has raised the neutral rate.