The New Zealand dollar fell to $0.585 on Monday, its lowest level in more than six weeks, as intensifying conflict in the Middle East continued to erode risk sentiment. With the hostilities now into a second week and few signs of de-escalation, investors have been trimming exposure to risk-sensitive currencies such as the kiwi. The turmoil has also heightened worries about a spike in oil prices, which could amplify global inflationary pressures.
On the domestic front, interest rate markets are assigning an 80% probability that the Reserve Bank of New Zealand will raise its cash rate in September, with roughly 40 basis points of additional tightening priced in for the remainder of the year. That stance is notably more hawkish than the RBNZ’s own guidance, which indicates that even a single rate hike this year is not yet assured.
