The New Zealand dollar weakened against a basket of major currencies during Asian trading on Thursday, pulling back from a four-week high against its US counterpart and heading for its first loss in three sessions as investors locked in recent gains. The move also coincided with a modest recovery in the US dollar amid ongoing military strikes between the United States and Iran.
The recent rally in oil prices has increased inflationary pressure on policymakers at the Reserve Bank of New Zealand, reinforcing expectations that the central bank could raise interest rates at its September meeting.
The Price
The New Zealand dollar fell about 0.3% against the US dollar to 0.5834, from the day's opening level of 0.5850, after reaching an intraday high of 0.5854.
The kiwi rose 0.65% against the US dollar on Wednesday, marking its second consecutive daily gain and reaching a four-week high of 58.63 US cents.
The US dollar remained under pressure against major currencies following another round of weaker-than-expected US inflation data, which further reduced expectations of a Federal Reserve interest rate hike this year.
US dollar
The US Dollar Index rose 0.1% on Thursday as the greenback attempted to recover from a one-month low against a basket of major currencies.
Demand for the US dollar as a safe-haven asset increased as military exchanges between the United States and Iran continued to escalate, while shipping activity through the Strait of Hormuz remained subdued, heightening concerns over potential disruptions to global oil supplies.
Iran conflict updates
The United States launched a new wave of airstrikes targeting Iranian coastal defense positions and missile launch sites.
Iran declared that the current confrontation represents an "existential war" and pledged to continue responding to US military operations while warning that it could expand measures affecting regional energy exports.
The US naval fleet, consisting of 20 warships and hundreds of military aircraft in the region, continues to intercept vessels traveling to and from Iranian ports.
Traffic through the Strait of Hormuz declined to just seven vessels, down from 13 the previous day, with supertankers and LNG carriers completely absent from the shipping lane.
US President Donald Trump said Iran "wants to reach a settlement," but stressed that any return to negotiations would require a change in Tehran's behavior.
Iran, meanwhile, insists it will not return to any previous understandings as long as US military operations continue.
New Zealand interest rates
Following its latest meeting, the Reserve Bank of New Zealand said that further interest rate increases may be required, although the timing and magnitude of any future moves will depend on incoming economic data, inflation trends, and the strength of economic activity.
Markets continue to price in a greater than 90% probability of a 25-basis-point interest rate increase at the September policy meeting.
Investors will closely monitor upcoming New Zealand economic data, including inflation, employment, and GDP figures, for further clues on the policy outlook.