New Zealand Dollar rebounds against USD as markets price in further RBNZ rate hikes

NZD/USD trades around 0.5880 on Thursday at the time of writing, up 0.28% on the day after ending a three-day decline. The pair's rebound is supported by expectations of a more restrictive monetary policy in New Zealand, although caution remains warranted due to ongoing tensions in the Middle East.

The New Zealand Dollar (NZD) continues to draw support from recent comments by Reserve Bank of New Zealand (RBNZ) Governor Anna Breman, who indicated that the Official Cash Rate could be increased sooner and by more than previously expected. The central bank believes that inflation risks linked to the Middle East conflict, rising input costs and weak growth justify a cautious approach. Markets are now pricing in multiple rate hikes throughout the year.

However, the Kiwi's upside potential may remain limited as investors continue to favour safe-haven assets. Iranian Foreign Minister Abbas Araghchi said on Wednesday that no tangible progress had been made in negotiations aimed at ending the hostilities. He also warned that any Israeli attack on Beirut could trigger a full-scale resumption of the conflict.

At the same time, United States (US) President Donald Trump stated that Washington was in the middle of final negotiations to end the war with Iran. Despite these remarks, markets remain cautious due to the lack of concrete progress and the ongoing exchange of missile and drone strikes among the parties involved.

The US Dollar (USD) remains under pressure, with the US Dollar Index (DXY) trading lower around 99.20 as investors await upcoming US economic data releases. Initial Jobless Claims are due on Thursday ahead of the May Nonfarm Payrolls (NFP) report on Friday.

According to market expectations, the US economy is projected to have added 85K jobs in May, while the Unemployment Rate is expected to remain unchanged at 4.3%. These figures could influence expectations regarding the future policy path of the Federal Reserve (Fed) and are likely to be the main catalyst for NZD/USD in the near term.