Commerzbank’s Volkmar Baur notes that the New Zealand Dollar (NZD) has underperformed the G10 since the war began, reflecting a dovish Reserve Bank of New Zealand (RBNZ) relative to the Reserve Bank of Australia (RBA). Weak labour market details, subdued wage growth and limited real wage gains suggest little domestic inflation pressure, allowing only cautious RBNZ tightening and leaving NZD vulnerable while the Iran conflict persists.

Weak wages and cautious RBNZ path

"While the Reserve Bank of Australia has raised interest rates for the third time this year (and the second time since the war began), the market does not expect the RBNZ to raise rates until July at the earliest."

"The year-over-year increase in average hourly wages also fell to 3.2%, the lowest level since 2020. Taking into account the 3.1% inflation rate in the first quarter, it becomes clear that real wages in New Zealand barely rose at all in the first three months."

"From this perspective, therefore, no inflationary pressure is expected. Admittedly, rising fossil fuel prices are likely to lead to higher inflation in the second quarter. And due to the increased costs, certain second-round effects will certainly arise."

"However, these should remain limited, which should allow the RBNZ to raise interest rates, if at all, only very cautiously. The kiwi should therefore remain under pressure as long as the conflict in Iran persists."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)