Kiwi Dollar Holds Firm, Inflation Data Eyed

The New Zealand dollar edged up to $0.585, the highest in more than six weeks, underpinned by a hawkish domestic interest rate outlook, while investors await the CPI report. New Zealand's annual inflation is expected to reach or even exceed 4% in the second quarter, which would mark its highest level in more than two years, largely driven by higher fuel prices. A higher-than-expected reading would reinforce the case for the RBNZ to raise the official cash rate to 3% by year-end. Markets are currently pricing in a 78% chance of a follow-up rate hike in September, with rates expected to peak at 3.5% by the middle of next year. The prospect of further rate increases at home has continued to support the kiwi, allowing it to outperform even as escalating tensions in the Middle East have dampened global risk appetite. The US conducted its ninth consecutive night of strikes against Iran while Tehran hit targets across the region.

The New Zealand dollar remained near a six-week high, hovering around $0.583, as the prospect of additional rate hikes at home helped offset a broader risk-off move amid escalating US-Iran tensions. The Reserve Bank of New Zealand is widely expected to raise interest rates again in September, with the OCR projected to reach at least 3.0% by the end of the year. Earlier this week, RBNZ Chief Economist Paul Conway warned that renewed hostilities in the Middle East could reignite inflationary pressures, potentially prompting the central bank to tighten policy further after last week's first hike in more than three years. Meanwhile, the US and Iran intensified attacks across the Gulf, disrupting shipments through the Strait of Hormuz, with Tehran reportedly asking Yemen’s Houthi rebel group to close the Red Sea export route if the US targeted Iran's power infrastructure. For the week, the currency rose more than 1%, marking its third straight week of gains.

The New Zealand dollar traded around $0.585, its highest level in six weeks, supported by expectations that the Reserve Bank of New Zealand will continue tightening monetary policy, alongside broad weakness in the US dollar. Markets widely expect the RBNZ to deliver another rate hike in September, with the OCR seen reaching at least 3.0% by the end of the year. RBNZ Chief Economist Paul Conway said earlier this week that renewed conflict in the Middle East could fuel inflationary pressures, potentially forcing the central bank to raise interest rates further following last week's first rate increase in more than three years. Meanwhile, the greenback hovered near a one-month low as investors scaled back bets on a near-term Federal Reserve rate hike after softer-than-expected inflation data. However, further gains in the kiwi could be limited by shifts in global risk sentiment, as escalating geopolitical tensions may prompt more investors to seek safe-haven assets.