New Zealand Dollar Drifts Lower

The New Zealand dollar edged down to $0.594 as investors remained cautious while awaiting developments in the Middle East conflict. The continued disruption in the Strait of Hormuz has kept oil prices elevated, complicating New Zealand’s efforts to contain inflation while supporting an economic recovery. 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 trim bets on a rate hike in May. However, markets continue to fully price in an increase in July as high energy costs fuel inflation concerns. Meanwhile, in a pre-Budget speech, Prime Minister Christopher Luxon reaffirmed the government’s commitment to returning the budget to a surplus by 2028–29 and placing debt on a downward trajectory toward 40% of GDP. The country's Budget for 2026 will be delivered on May 28.

The New Zealand dollar fell to around $0.594, retreating from an over two-month high as risk sentiment weakened again amid fresh uncertainty over a quick end to the Middle East conflict. President Donald Trump dismissed Iran’s response to the US proposal to end the war, calling it “totally unacceptable” and accused Tehran of playing games. He also cast doubt on the survival of their ceasefire. The tensions have pushed oil prices higher, complicating New Zealand’s efforts to contain inflation while supporting an economic recovery. 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.