New Zealand Dollar Holds Gains

The New Zealand dollar held its recent advance at around $0.586 after President Donald Trump again said that the conflict with Iran would conclude “very quickly,” reviving hopes for a peace deal. Further supporting the currency, data released today showed New Zealand’s trade surplus widened to a record high in April, well above expectations, driven by strong export growth. This signaled resilient external demand despite ongoing geopolitical uncertainty. However, recent indicators point to a softening in domestic economic momentum. The Reserve Bank of New Zealand has maintained a cautious stance on policy tightening, given the economy has only recently emerged from recession and still has significant spare capacity. Still, market pricing suggests around a 30% chance of a rate increase later this month and a 90% probability in July, amid inflation concerns due to elevated oil prices.

The New Zealand dollar traded at a three-week low around $0.583, weighed down by a firm US dollar, while signs emerge of weakening momentum in the local economy. The greenback remained strong amid growing expectations that the Federal Reserve may resume its rate-hiking cycle. Meanwhile, data showed New Zealand's 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.

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.