New Zealand Dollar Drifts Higher

The New Zealand dollar edged up to $0.587 after three consecutive sessions of losses, as investors weighed renewed hopes for a resolution in the Middle East war. Some relief emerged after Israel and Lebanon had agreed to implement a ceasefire contingent on Hezbollah halting its attacks, while President Donald Trump said talks with Iran were going “very well” and could produce outcomes over the coming weekend, despite denials from Tehran. The kiwi was also supported by rising expectations of tighter monetary policy following a hawkish outlook from the Reserve Bank of New Zealand. Markets are currently pricing in roughly an 80% chance of a rate hike in July and about 75 basis points of cumulative tightening over the year, equivalent to three quarter-point increases.

The New Zealand dollar extended its decline, falling to around $0.586 amid uncertainty over a potential Middle East peace agreement. Conflicting signals from the US and Iran, alongside renewed clashes near the Strait of Hormuz, have heightened concerns about prolonged geopolitical and trade disruptions. However, further losses were tempered by expectations of tighter monetary policy following a hawkish outlook from the Reserve Bank of New Zealand, with Governor Anna Breman noting that interest rates are likely to rise earlier and more sharply than previously signaled to curb inflation. Markets are currently pricing in roughly an 80% chance of a rate hike in July and around 75 basis points of cumulative tightening over the year, equivalent to three quarter-point increases.

The New Zealand dollar fell to around $0.596 on Monday but stayed close to a three-month high, amid increased bets on interest rate hikes this year. Reserve Bank of New Zealand Governor Anna Breman said last Friday that interest rates are likely to rise earlier and more sharply than previously indicated in order to curb inflation. Her comments followed the central bank’s decision to keep the official cash rate at 2.25%, with updated projections pointing to two 25-basis-point rate hikes before year-end. Market pricing now implies an 80% probability of a rate hike in July, with expectations for around 75 basis points of total tightening over the year, equivalent to three rate increases. Meanwhile, broader market sentiment remained cautious as investors awaited US President Donald Trump’s decision on a proposed deal to extend the ceasefire with Iran.