New Zealand Dollar advances above 0.5950 as RBNZ signals faster and larger rate hikes

Finance

New Zealand Dollar advances above 0.5950 as RBNZ signals faster and larger rate hikes

The NZD/USD pair gathers strength to around 0.5955 during the early European session on Friday. The New Zealand Dollar (NZD) edges higher against the US Dollar (USD) amid hawkish signals from the Reserve Bank of New Zealand (RBNZ).

RBNZ Governor Anna Breman said early Friday that the Official Cash Rate (OCR) is likely to increase sooner and by more than previously signalled, citing Middle East conflict-driven inflation, weaker growth and rising input costs across New Zealand and its trading partners.

The New Zealand central bank kept its OCR on hold at 2.25% at its May meeting on Wednesday. Three board members voted to raise interest rates by a quarter-point while three voted to leave rates unchanged. Markets have repriced the New Zealand rate outlook, with traders now expecting multiple hikes through early 2027.

The US April Personal Consumption Expenditures (PCE) Price Index inflation data show price growth remains elevated in the US, reinforcing expectations that the Federal Reserve (Fed) stays cautious on interest rates. Traders are now pricing in nearly a 36.6% chance that the Fed will raise interest rates by 25 basis points (bps) by year-end, according to the CME FedWatch tool.