New Zealand Dollar Rises on US-Iran Agreement

The New Zealand dollar rose to around $0.585, reaching its highest level in over a week as investor sentiment improved following a peace agreement between the US and Iran. Pakistan’s Prime Minister announced the breakthrough, stating that both nations had agreed to the immediate and permanent halt of military operations across all fronts, including in Lebanon. President Donald Trump said that the Strait of Hormuz would reopen on Friday following the signing of the agreement with Iran in Switzerland. Also supporting the kiwi, the Reserve Bank of New Zealand is widely expected to tighten monetary policy in July. Markets are currently assigning an 85% chance to a 25-basis-point rate hike, with expectations for two additional increases that would bring the OCR to 3.0% by the end of the year.

The New Zealand dollar traded around $0.581, near its lowest in two months, as traders remained wary amid escalating tensions in the Middle East. The US conducted new strikes on several targets in Iran, prompting Iran to order the complete closure of the Strait of Hormuz to all shipping. The strikes came just a day after the US struck Iran following the crash of a military helicopter near the strait, which President Donald Trump blamed on Tehran. The latest attacks further clouded prospects for a peace deal between the two countries and added strain to an already fragile ceasefire. Limiting the kiwi's losses, however, were expectations of higher interest rates following a hawkish outlook from the Reserve Bank of New Zealand. Markets are now pricing in an 85% chance of a 25-basis-point rate hike in July, with expectations of two additional increases that would take rates to 3.0% by year-end. The OCR is also seen to peak at around 3.5% late next year.

The New Zealand dollar traded around $0.581, attempting to rise from a two-month low, as risk sentiment improved following a recent concession of strikes in the Middle East. Israel and Iran both agreed to halt mutual attacks after an earlier escalation in violence, raising hopes of a possible restart of talks toward a broader ceasefire agreement in the region. Meanwhile, the Kiwi dollar remained supported by expectations of central bank tightening, as the Reserve Bank has recently taken a more hawkish turn. Following the central bank’s split decision to hold rates in late May, policymakers signaled that interest rates could rise earlier and by a larger-than-expected margin to offset the impact of the energy shock. Markets now imply a chance that the RBNZ will lift its 2.25% cash rate by a quarter point at its next meeting on July 8 and peak around 3.50% late next year.