The New Zealand dollar, known as the kiwi, rose on Thursday to its highest level in more than two weeks after strong manufacturing data reinforced investor expectations that New Zealand will continue tightening monetary policy.

Strong industrial data and hawkish central bank stance support the kiwi

The data showed that New Zealand's manufacturing sector expanded last month at its fastest pace in nearly five years, while Reserve Bank of New Zealand Governor Anna Breman said the economy was growing more strongly than expected after the central bank raised interest rates this week.

In trading, NZD/USD hovered near 0.5730, up about 0.56%, as the New Zealand currency continued to draw support from the RBNZ's decision, which was more hawkish than markets had expected.

As widely expected, the central bank raised the official cash rate by 25 basis points to 2.5% at its July meeting. More importantly for markets, however, it signaled that further withdrawal of monetary stimulus may be necessary to ensure inflation returns sustainably to target.

The bank's forecasts show inflation peaking at 3.9% in the second quarter before gradually easing toward 2%, the midpoint of the target range, by mid-2027.

DBS noted that the Monetary Policy Committee's unanimous vote in favor of the rate hike marked a notable shift from the May meeting, when views were divided, and reflected the central bank's renewed commitment to fighting inflationary pressures.

Weak Chinese inflation and geopolitical tensions limit gains

Despite the positive momentum, the latest economic data from China limited the New Zealand dollar's gains, given that China is New Zealand's largest trading partner.

China's National Bureau of Statistics said the consumer price index rose 1% year on year in June, down from 1.2% in the previous month and below market expectations of 1.1%.

On a monthly basis, inflation fell 0.3%, a larger decline than expected, reflecting continued weakness in price pressures across the Chinese economy.

Meanwhile, the US dollar continued to draw support from escalating geopolitical tensions, as relations between the United States and Iran deteriorated further for a second consecutive day, with both sides exchanging fresh threats.

The worsening geopolitical backdrop increased demand for safe-haven assets, which could limit further gains in NZD/USD in the near term.