New Zealand Dollar Advances

The New Zealand dollar rose to around $0.580 on Monday after falling 0.9% last week, as risk sentiment improved following a pause in military strikes between the US and Iran. Iran said on Sunday that it had halted retaliatory attacks against US allies in the Middle East after Washington suspended further strikes against the country since Friday, easing concerns over a broader escalation in the conflict. The lull in fighting pushed oil prices lower, providing additional support for the kiwi, as New Zealand’s heavy reliance on imported energy leaves the currency sensitive to fluctuations in fuel costs. On the policy front, the Reserve Bank of New Zealand is widely expected to deliver another 25-bp hike in September following hot inflation data last week, with markets implying rates to reach at least 3.0% by year-end and peak at 3.5% around mid-2027.

The New Zealand dollar steadied at $0.577 but held most of its losses from the previous sessions, as escalating tensions between the US and Iran dampened risk appetite. The US carried out more strikes on Tehran, with President Donald Trump threatening to intensify the conflict with Iran following Houthi militants' attacks on two Saudi Arabian oil tankers in the Red Sea. While the conflict has heightened inflation concerns amid rising oil prices, it has also increased downside risks to the economy, as New Zealand is heavily dependent on oil imports, leaving the currency vulnerable to supply disruptions and higher energy costs. Still, the Reserve Bank of New Zealand is widely expected to raise interest rates again in September following hot inflation data, with rates projected to reach at least 3.0% by year-end and peak at 3.5% around the middle of next year. The kiwi fell nearly 1% this week, its first weekly decline in four.

The New Zealand dollar fell to around $0.579, extending its decline as traders assessed the impact of persistent Middle East tensions on the country's inflation outlook and broader economic prospects. The US and Iran continued to exchange strikes, while Yemen’s Houthi militants said they had attacked two Saudi Arabian tankers in the Red Sea, driving oil prices sharply higher. While the conflict has heightened inflation concerns, it has also put downside risks on the economy, as New Zealand remains heavily dependent on oil imports, leaving the kiwi vulnerable to supply disruptions and higher energy costs. Still, the Reserve Bank of New Zealand is widely expected to deliver another 25-basis-point rate hike in September following higher-than-expected inflation in the second quarter, with rates seen reaching at least 3.0% by year-end and peak at 3.5% around the middle of next year.