New Zealand Dollar Falls to 6-Week Low

The New Zealand dollar dropped to around $0.582, its lowest level in six weeks, as signs emerge of weakening momentum in the local economy. Data showed retail card spending fell in April as households reduced purchases across all store types. This followed reports that the services sector stayed in contraction in April, even with a slight improvement in activity, while manufacturing growth slowed to a seven-month low, as Middle East energy disruptions weighed on businesses. The Reserve Bank of New Zealand has so far been cautious about tightening policy, as the economy has only recently emerged from recession and still has significant spare capacity. Even so, markets are pricing in around a 30% chance of a rate increase later this month and a 90% probability in July, as higher energy prices fuel inflation concerns. Also weighing on the kiwi, the US dollar remained firm amid growing expectations that the Federal Reserve may resume its rate-hiking cycle.

The New Zealand dollar fell to around $0.585 on Friday, heading for a weekly decline, pressured by a stronger US dollar and weak domestic data. The greenback strengthened further amid rising expectations for a Federal Reserve rate hike later this year. On the data front, 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 Reserve Bank of New Zealand has so far been cautious about tightening policy, as the economy has only recently emerged from recession and still has significant spare capacity. Even so, markets are pricing in around a 40% chance of a rate increase later this month, while a move in July remains fully priced in amid mounting inflation concerns due to elevated oil prices. The kiwi has fallen nearly 2% so far this week, after two straight weeks of gains.

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.