New Zealand Dollar Set for Weekly Loss

The New Zealand dollar fell to around $0.588 on Friday, heading for a weekly decline, pressured by weak domestic manufacturing data. New Zealand’s manufacturing growth slowed to a seven-month low in April, with the index falling to 50.5 from 52.8 in March, as shipping disruptions, higher fuel costs, and delays in raw material deliveries stemming from the Middle East war weighed on activity. The crisis presents a dual challenge for the Reserve Bank of New Zealand's monetary policy outlook, with surging energy prices feeding inflationary pressures while also threatening to derail a fragile economic recovery. Markets are currently pricing in around a 40% chance of a rate hike later this month, while a move in July remains fully priced in amid mounting inflation concerns. The kiwi has fallen more than 1% so far this week, on track for its first weekly loss in three.

The New Zealand dollar held its recent decline at around $0.593 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 later this month. 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 later this month. 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.