New Zealand Dollar Edges Lower

The New Zealand dollar edged down to around $0.581 as investors shifted attention toward upcoming central bank decisions, particularly the US Federal Reserve. The Fed is widely expected to hold rates steady at the first meeting under new chair Kevin Warsh. Meanwhile, markets are awaiting further details on a US–Iran agreement that could pave the way for the full reopening of the Strait of Hormuz. On the monetary policy front, expectations for the Reserve Bank of New Zealand remain tilted toward tightening in July, although swap pricing now implies two rate hikes for the year, compared with earlier expectations of three.

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. Both nations have agreed on a framework to end their three-month conflict, with a formal signing scheduled for Friday in Switzerland. Under the deal, Washington will lift its naval blockade of Iranian ports, while Tehran is expected to remove restrictions on shipping through the Strait of Hormuz. Meanwhile, markets continue to expect the Reserve Bank of New Zealand to raise interest rates by 25 basis points in July, although swap pricing now suggests only two rate hikes this year rather than the three previously anticipated.

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.