The New Zealand dollar fell to $0.591 on Tuesday, giving back its brief rebound from the previous session, as risk aversion persisted and investors reassessed inflation risks. Although recent comments from President Trump have raised hopes that the Middle East conflict could be resolved sooner than expected, market participants remain cautious and are trimming positions in risk-sensitive assets, including the kiwi.
At the same time, the sharp rise in oil prices has intensified concerns about inflation. Analysts now expect New Zealand inflation to remain more elevated than the central bank anticipates, as higher fuel costs linked to the Iran conflict add upward pressure on prices. This has reinforced expectations of monetary tightening, with markets fully pricing in a rate hike in September and assigning a probability of more than 70% to a second increase in December. That marks a notable shift from last month, when the RBNZ signaled that the official cash rate was likely to stay around 2.25% for the remainder of the year.