The New Zealand dollar rose broadly on Wednesday against a basket of global currencies, moving toward its highest level in at least two weeks against its US counterpart, after hawkish signals from the Reserve Bank of New Zealand following its decision to leave interest rates unchanged.

The decision came amid a sharp division and a historic vote split within the Reserve Bank of New Zealands Monetary Policy Committee, which indicated that interest rates may need to rise in the coming months to counter accelerating inflation in the country, lifting expectations for a New Zealand rate hike in July.

Price Overview

New Zealand dollar exchange rate today: The New Zealand dollar rose 0.7% against the US dollar to 0.5878, from todays opening level at 0.5837, and recorded a low of 0.5836.

The New Zealand dollar ended Tuesdays trading down 0.6% against the US dollar due to risk aversion after the United States carried out strikes on Iranian boats and missile sites.

Reserve Bank of New Zealand

The Reserve Bank of New Zealand (RBNZ) on Wednesday kept its benchmark interest rate unchanged at 2.25%, the lowest level since July 2022, in line with most market expectations, marking the third consecutive meeting without change.

The six-member Monetary Policy Committee at the Reserve Bank of New Zealand saw a complete split in voting, with three members voting to keep rates unchanged, while three other members the external members voted in favor of an immediate 25 basis point rate hike. The final decision to hold rates steady was determined by the casting vote of Governor Anna Breman.

In its updated monetary policy statement, the New Zealand central bank confirmed that the war in the Middle East and rising energy prices would keep inflation above the target range this year.

The New Zealand central bank said: Overall, the official cash rate is likely to need to rise more quickly and to higher levels than anticipated in the monetary policy statement issued in February.

The bank added: The pace of official cash rate increases will depend on the extent to which persistent wage and price pressures outweigh the impact of weak economic activity on medium-term inflation pressures.

Reserve Bank of New Zealand Governor Anna Breman said her view and that of the group supporting her decision were based on the desire to wait for more economic data before taking a tightening step.

Breman explained that the economic impact of the Iranian war and the disruption to shipping in the Strait of Hormuz would continue for a long period even after hostilities cease.

She acknowledged that New Zealand households are going through difficult conditions due to rising prices, but reassured markets that the situation would begin improving next year.

New Zealand interest rates

Following the meeting, markets raised pricing for the probability of a 25 basis point New Zealand interest rate hike at the July 8 meeting to above 70%.

Markets also raised pricing for the probability of a 25 basis point rate hike at the September meeting to above 90%, with expectations that New Zealand will deliver three interest rate increases this year.

Investors will closely monitor the release of several important New Zealand economic data points in the coming period, including inflation, unemployment, and economic growth figures, in order to reassess those expectations.