The New Zealand dollar hovered near $0.585 on Friday, consolidating its recent decline as geopolitical tensions kept market participants cautious. Hopes for sustained peace talks between the US and Iran remained fragile, even after a ceasefire extension. Iran reiterated it would not reopen the Strait of Hormuz, while the US continued to enforce a blockade on vessels traveling to and from Iranian ports.
On the monetary policy front, expectations have strengthened that the Reserve Bank of New Zealand will raise the official cash rate by 25 basis points in May, following a stronger-than-expected inflation reading for the first quarter. Price pressures are also projected to build further in the second quarter as the full impact of higher energy costs filters through to the data. The RBNZ has recently cautioned that it stands ready to act decisively if inflation accelerates.
Even so, many analysts still anticipate that policymakers will leave rates on hold in the near term, as the conflict in the Middle East poses a risk to New Zealand’s already fragile economic recovery.
