New Zealand Dollar Near 2-Week High

The New Zealand dollar traded near a two-week high at around $0.589 on Thursday, after RBNZ Governor Anna Breman said the cash rate may need to rise as inflationary pressures intensify. Her remarks reinforced the hawkish tone struck by the central bank when it kept interest rates unchanged the previous day. Updated projections from the RBNZ indicate at least two 25-basis-point rate hikes before year-end. Higher oil prices have lifted the inflation outlook, now projected to peak at 4.3% in the third quarter, well above the RBNZ’s 1-3% target range. The central bank also revised its economic growth forecasts lower. Breman noted that policymakers are closely monitoring the extent to which weaker demand, driven by rising costs and persistent inflation, is acting to ease broader price pressures across the economy, a key factor in assessing the future path of rates. She added that the central bank remains committed to returning inflation to its target.

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 RBNZ lowered its GDP forecast, now projecting growth of 1.4% for the year ending March 2027, down from 2.4% in its February estimate.

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.