Commerzbank’s Volkmar Baur notes New Zealand inflation at 3.1% year-on-year, slightly above the Reserve Bank of New Zealand (RBNZ) target, and warns that higher energy prices could push it further. He sees a possible rate hike in late May, which might briefly support the New Zealand Dollar (NZD). However, stagflation risks and growth headwinds leave the medium-term outlook for the kiwi unfavourable.

RBNZ caution versus weak growth outlook

"With a year-over-year increase of 3.1%, inflation in New Zealand in the first quarter of this year was slightly above the central bank’s target range. However, given the rise in energy prices, this may not be the end of it."

"The central bank has therefore already emphasized in recent weeks that it will be very cautious regarding monetary policy. Waiting for clear signs that second-round effects will materialize would be too late - at least according to Governor Anna Breman."

"A potential hike in the key interest rate at the upcoming meeting in late May does seem possible. However, this naturally depends heavily on how the situation in the Gulf continues to develop."

"In any case, a hike would provide some short-term support for the kiwi. In the medium term, however, this is unlikely to have a positive effect."

"All in all, this is not a favorable environment for the kiwi."

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