The New Zealand dollar edged up to $0.588 on Monday, extending gains from the previous session as investors continued to track developments in the Middle East. Talks between the US and Iran have stalled, keeping traffic through the Strait of Hormuz constrained and energy prices elevated. Rising oil and gas costs have increased the risk of further monetary tightening.
Data released last week showed New Zealand inflation coming in above expectations and remaining outside the Reserve Bank of New Zealand’s 1–3% target band. Price pressures are also expected to build further in the second quarter, when the full impact of higher energy costs is reflected in the data, reinforcing expectations that the RBNZ may start lifting interest rates in the coming months.
Even so, caution persists as the conflict in the Middle East threatens to undermine New Zealand’s fragile economic recovery. Markets are now pricing in around a 60% probability of a 25 bps rate hike in May, with a further move in July fully priced in.
