The New Zealand dollar strengthened to $0.587 as risk sentiment improved on renewed hopes for a peace deal between the United States and Iran. Senior US officials signalled over the weekend that the two countries are edging closer to an agreement that could lead to the reopening of the Strait of Hormuz. However, key terms are still under negotiation, and final approval from both sides is expected to take several more days.
On the monetary policy front, the Reserve Bank of New Zealand is widely expected to leave the official cash rate unchanged at 2.25% later this week. Even so, market pricing increasingly points to the prospect of tighter policy ahead, implying roughly an 80% probability of a rate hike in July and fully pricing in a move by September. The shift reflects heightened inflation risks stemming from disruptions to global energy supplies. Against this backdrop, the central bank is expected to revise its projections for both inflation and the policy rate at its upcoming meeting.
