• NZD/USD remains subdued as the New Zealand Dollar saw little movement despite rising one- and two-year RBNZ inflation expectations.
• RBNZ's Anna Breman noted Q1 core inflation remained within the target range, signaling progress in stabilizing consumer prices.
• US Dollar Index remains firm after Trump’s Middle East comments heightened geopolitical volatility.

NZD/USD extends its losses for the second successive day, trading around 0.5940 during the Asian hours on Wednesday. The pair remains subdued as the New Zealand Dollar (NZD) moves little following the release of RBNZ Inflation Expectations, which rose on a 12-month time frame and on a two-year time frame for the second quarter of 2026.

New Zealand’s inflation outlook has shifted as two-year expectations climbed to 2.53% for Q2 2026, while one-year expectations surged to 3.41%. These rising figures, coupled with high oil prices driven by ongoing disruptions in the Strait of Hormuz, have complicated the Reserve Bank of New Zealand's (RBNZ) efforts to balance price stability with economic recovery. Consequently, markets have fully priced in a rate hike for July as energy-driven inflation remains a primary concern.

Despite these pressures, RBNZ Governor Anna Breman recently noted that core inflation stayed within the target range during the first quarter. This stability prompted investors to scale back expectations for a rate hike in May, providing a brief reprieve in market bets.

On the fiscal front, New Zealand’s Prime Minister Christopher Luxon used a pre-Budget speech to reaffirm the government’s long-term strategy. Ahead of the May 28 Budget, Luxon committed to achieving a budget surplus by 2028–29 and confirmed a target to reduce national debt toward 40% of GDP.

The NZD/USD pair depreciated as the US Dollar (USD) remained firm on a volatile geopolitical climate in the Middle East following recent comments from US President Donald Trump. While claiming that Iran is "under control," the President warned of a binary outcome: a new deal or total "decimation." In response, Iranian Deputy Foreign Minister Kazem Gharibabadi maintained a firm stance, asserting that any viable peace agreement must include reparations, recognized sovereignty over the Strait of Hormuz, and a complete end to US sanctions.