The New Zealand dollar fell to around $0.584 on Friday, its lowest level in more than seven weeks, pressured by rising risk aversion amid ongoing tensions in the Middle East. Defiant statements on Thursday from US President Trump and Iran’s new supreme leader heightened concerns that the conflict could drag on, prompting investors to move further into safe-haven assets.
At the same time, the impact of the Iran conflict on global oil prices is already feeding through to New Zealand fuel costs and airfares. In turn, some economists now expect the Reserve Bank of New Zealand could raise interest rates sooner than previously anticipated, particularly if these cost pressures spill over into broader inflation. Markets are currently almost fully pricing in a 25-basis-point rate hike in September, and see more than a 70% probability of another increase in December.
