FX.co ★ New Zealand Dollar Attempts to Rebound

The New Zealand dollar edged up to around $0.581, paring last week’s losses and attempting to recover from a more than seven-week low, as markets continued to weigh the likelihood of an RBNZ rate hike this year. Rising oil prices tied to the ongoing Middle East conflict are starting to filter through to the New Zealand economy, driving up petrol costs and airfares. As these inflationary pressures intensify, several economists now argue the central bank may need to tighten policy sooner than previously anticipated. Market pricing reflects this shift, with investors largely factoring in a 25 bps rate increase in September and assigning a probability of over 70% to another hike in December. This stands in contrast to the RBNZ’s own guidance, which implies that a rate increase before year-end is not fully built into its projections, given the weak economic backdrop. Investors are now focused on Q4 GDP data due this week, which is expected to show a sharp quarterly slowdown in growth and could further complicate the policy outlook.