Kiwi Dollar Rises on US-Iran Peace Hopes

The New Zealand dollar rose to $0.587 as risk sentiment improved on hopes of a peace deal between the US and Iran. Senior US officials indicated over the weekend that both countries were nearing an agreement that could reopen the Strait of Hormuz, although they are still negotiating key terms, and final approval from both sides is likely to take several days. On the monetary policy front, the Reserve Bank of New Zealand is widely expected to keep the official cash rate unchanged at 2.25% later this week, though market pricing suggests an increasing likelihood of tighter policy ahead, with an implied roughly 80% probability of a rate hike in July and a fully priced move by September, as global energy supply disruptions raise inflation risks. Given this, the central bank is anticipated to revise its projections for both inflation and the policy rate at its upcoming meeting.

The New Zealand dollar hovered around $0.587, holding its rebound from a three-week low after stronger-than-expected trade data. The country's trade surplus widened to a record high in April, well above expectations, driven by solid 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 next week and a 90% probability in July, amid inflation concerns due to elevated oil prices. Meanwhile, conflicting signals surrounding progress on a US–Iran peace deal have kept investors cautious. The kiwi is on track for a weekly gain.

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 next week and a 90% probability in July, as higher energy prices fuel inflation concerns.