Kiwi Dollar Rises to 4-Week High

The New Zealand dollar rose to around $0.577 on Tuesday, its highest level in four weeks, following remarks from RBNZ Chief Economist Paul Conway. Conway warned that inflation may not ease as quickly as the central bank expects, raising the possibility of further interest rate hikes. Last week, the RBNZ lowered its forecast for third-quarter inflation to 3.3% from 4.3%, citing lower fuel prices following the interim US-Iran agreement. However, oil prices have rebounded in recent days as renewed fighting in the Middle East fueled supply concerns. The RBNZ's hawkish stance last week, combined with a series of upbeat domestic economic data, has led markets to price in two additional rate hikes this year. However, the kiwi's gains were limited as the standoff between the US and Iran intensified, with President Trump reimposing a US naval blockade of Iranian ports and announcing a 20% charge on all cargo shipped through the Strait of Hormuz, dampening risk appetite.

The New Zealand dollar held around $0.576 on Monday, hovering near its highest level in more than three weeks, supported by expectations of further interest rate hikes from the Reserve Bank. Swaps traders are fully pricing in two additional quarter-point rate hikes from the Reserve Bank of New Zealand by year-end, following the central bank’s hawkish stance and strong manufacturing data last week. Additional support came from fresh data showing that New Zealand’s services sector returned to expansion in June for the first time since January, reinforcing the view that the economy is regaining momentum. However, escalating tensions in the Middle East are weighing on risk sentiment and limiting the kiwi’s gains. The US and Iran exchanged heavy missile and drone strikes over the weekend, while issuing conflicting signals over the status of the Strait of Hormuz.

The New Zealand dollar edged up to around $0.576, the highest level in over three weeks, amid expectations of an additional rate hike following the Reserve Bank’s hawkish stance. The central bank raised its official cash rate on Wednesday for the first time in three years to tackle inflation pressures, adding that further tightening may be needed. The decision came as oil prices began rising again following renewed hostilities between the US and Iran, reinforcing the central bank’s concerns over inflation. Governor Anna Breman said elevated fuel prices remained the key upside risk to inflation, warning that if the conflict persists, inflation could become embedded. Markets now imply a 73% chance of a follow-up hike in September. Supporting the hawkish outlook, New Zealand’s manufacturing activity expanded at the fastest pace in almost five years in June, adding to signs of a pickup in economic growth. The kiwi has gained 0.9% this week, its second consecutive weekly advance.