Kiwi Dollar Falls on Iran Deal Uncertainty

The New Zealand dollar fell to $0.584 on Tuesday, reversing the previous session’s gains as fresh US strikes on Iran dented the prospect of a peace deal. The US military reportedly targeted missile launch sites and mine-laying boats in southern Iran near the Strait of Hormuz, which a military spokesperson described as acts of self-defense. Meanwhile, investors are turning their attention to the Reserve Bank of New Zealand’s policy decision on Wednesday, where the official cash rate is widely expected to remain unchanged. However, the central bank is anticipated to lower economic growth forecasts while revising inflation and interest rate projections higher, reflecting the impact of surging global energy and fuel costs. Market pricing also points to a more hawkish outlook, with around an 80% probability of a rate increase in July and a fully priced move by September.

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.