Commerzbank’s Volkmar Baur highlights that the New Zealand Dollar (NZD) has underperformed its G10 peers since the onset of the war, a trend attributed to the Reserve Bank of New Zealand’s (RBNZ) dovish stance compared to the Reserve Bank of Australia (RBA) [1]. The RBA has raised interest rates three times this year, including twice since the war began, while markets do not anticipate an RBNZ rate hike until July at the earliest [1].
Key labour market data from New Zealand show a year-over-year increase in average hourly wages of just 3.2%, marking the lowest growth since 2020 [1]. With first-quarter inflation at 3.1%, real wage growth was minimal, indicating subdued domestic inflationary pressures [1]. This environment allows the RBNZ to proceed cautiously with monetary tightening, in contrast to the more aggressive RBA [1].
While rising fossil fuel prices are expected to push inflation higher in the second quarter, Commerzbank notes that any resulting second-round effects should be limited [1]. As a result, the RBNZ is likely to raise rates, if at all, only very cautiously, leaving the NZD vulnerable, especially as the Iran conflict continues [1].
CONCLUSION
Soft labour market data and subdued wage growth in New Zealand are capping the RBNZ’s ability to tighten monetary policy aggressively. As a result, the NZD is expected to remain under pressure relative to its G10 peers, particularly while geopolitical tensions persist.