New Zealand Dollar Retreats

The New Zealand dollar fell to around $0.595 on Monday, retreating from a more than two-month high as risk sentiment weakened again after President Donald Trump dismissed Iran’s response to the US proposal to end the war. Trump described the response as “totally unacceptable” and accused Tehran of playing games, dampening hopes for an imminent resolution to the 10-week-long conflict. The tensions have pushed oil prices higher, posing a challenge for New Zealand’s inflation and economic outlook. Reserve Bank of New Zealand Governor Anna Breman recently noted that core inflation measures remained stable within the central bank’s target range in the first quarter, prompting investors to scale back expectations of a rate hike in May. However, markets continue to fully price in an increase in July as elevated energy costs fuel inflation concerns. Meanwhile, last week’s mixed labor market data had little impact on interest rate expectations.

The New Zealand dollar climbed back to an over two-month high at around $0.596 on Friday, after falling 0.3% in the prior session on renewed US-Iran tensions. The US military said it launched strikes on Iranian military targets on Thursday in response to attacks on its three destroyers in the Strait of Hormuz. Still, investors continue to focus on signs that the US is seeking to de-escalate tensions, with President Trump saying that the ceasefire was still holding despite the latest strikes. Meanwhile, the jobs report released earlier this week showed mixed results and had little impact on rate expectations. Traders see only a 34% chance of a rate hike later this month, though a July increase remains fully priced in as rising energy costs fuel inflation concerns. The RBNZ said the financial system remains resilient amid heightened global risks, though warned of a slower economic recovery that could weigh on employment. The kiwi is on track for its second straight weekly gain.

The New Zealand dollar rose to around $0.597 on Thursday, building on gains from the previous session to reach its highest level in over two months, as mounting hopes of a US-Iran peace deal boosted risk appetite. Reports suggest that both sides are close to finalizing a one-page memorandum aimed at ending their conflict, potentially paving the way for the gradual reopening of the Strait of Hormuz. Meanwhile, domestic labour market data showed mixed results and had little impact on the rate outlook. The unemployment rate edged lower, coming in slightly below expectations, while employment growth missed forecasts. Traders are implying only a 34% chance of a rate hike later this month, although a July increase remains fully priced in amid inflation concerns tied to higher energy prices. The Reserve Bank of New Zealand said the financial system remains resilient despite heightened global risks, though it warned of a slower economic recovery that could weigh on employment.