Kiwi Dollar Firms After RBNZ Signals Future Hikes

The New Zealand dollar rose to around $0.587 on Wednesday after the Reserve Bank of New Zealand kept its official cash rate unchanged at 2.25% as expected but signaled that rate increases are likely in the coming months. The policy outlook leaned more hawkish, with the central bank’s forward guidance showing the OCR rising to around 2.84% by year-end, implying at least two 25-basis-point hikes. This reflects concerns that rising fuel costs could push inflation well above the RBNZ’s 1-3% target band, with inflation projected to accelerate to 4.3% in the third quarter, strengthening the case for tighter policy to prevent price pressures from becoming entrenched. However, the central bank also acknowledged growing economic headwinds, noting that higher energy prices are already weighing on household spending and dampening business confidence.

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, amid 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 on Monday 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.