The New Zealand dollar slipped to around $0.589 on Thursday, extending its decline for a third straight session as investors remained cautious amid ongoing conflict in the Middle East. Sentiment deteriorated further after fresh attacks on three commercial vessels in the Gulf of Oman on Wednesday, which intensified global risk aversion and drove another jump in oil prices.
The currency’s losses were limited, however, by rising expectations of an imminent rate hike from the Reserve Bank of New Zealand, as the surge in oil prices stoked renewed inflation concerns. Analysts warned that price pressures may not ease as quickly as the RBNZ anticipates, increasing the likelihood that policymakers could be forced to tighten monetary policy sooner than previously signaled.
Money markets are now almost fully pricing in a 25-basis-point rate increase in September, and assigning more than a 70% probability to an additional hike in December.
