• The New Zealand Dollar weakens after global commodity prices declined in June.
• Diverging views fuel uncertainty ahead of the Reserve Bank of New Zealand's July policy decision.
• The US Dollar strengthens as markets continue to price in multiple Federal Reserve rate hikes this year.

NZD/USD trades around 0.5680 at the time of writing, down 0.50% on the day as the New Zealand Dollar (NZD) remains under pressure against a stronger US Dollar (USD). The Kiwi is weighed down by a 1% decline in the ANZ Commodity Price index in June, reflecting the impact of easing Middle East tensions and lower Oil prices on New Zealand's export commodities.

Investors are now focused on the upcoming Reserve Bank of New Zealand (RBNZ) policy decision. The New Zealand Institute of Economic Research (NZIER) shadow board remains almost evenly split on the outcome of the July meeting, highlighting significant short-term uncertainty that could increase volatility in the New Zealand Dollar. Despite these near-term differences, NZIER economists broadly agree that the Official Cash Rate (OCR) should rise to a range of 3% to 3.25% over the next twelve months.

ANZ shares a similar view and expects the RBNZ to raise the OCR by 25 basis points to 2.5% next week. The bank believes that persistent inflation risks and the weakness of the domestic currency justify further policy tightening despite the recent decline in Oil prices.

BNY also maintains a hawkish outlook, expecting the RBNZ to deliver a 25-basis-point rate hike to 2.5%, supported by stronger Gross Domestic Product (GDP) growth, a resilient labor market and inflation remaining near the upper end of the central bank's target range. According to BNY, markets will primarily focus on the RBNZ's forward guidance and whether it retains a hawkish bias, keeping expectations for the OCR on track to reach around 3% by early 2027.

Meanwhile, the US Dollar is gaining support as markets continue to price in multiple Federal Reserve (Fed) rate hikes by the end of the year. Investors are now awaiting Wednesday's release of the Fed's June Meeting Minutes, as well as the Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI), due later in the day, for fresh clues on the future path of US monetary policy. Comments from Iran's ambassador to China regarding potential new transit fees through the Strait of Hormuz are also contributing to a cautious market mood.