Holding… holding… held. That pretty much sums up how we (and markets) were looking at headlines last week as news broke around a ceasefire between Israel and Iran – a truce “orchestrated” by none other than President Trump himself. Despite a bit of a rocky start, the ceasefire continues to hold. The news bolstered risk sentiment, with equities rallying. Meanwhile, oil prices quickly unwound their recent spike and have returned to levels before the conflict broke out.

To be honest, market movements during this period of escalated conflict had been more subdued than what you may usually expect in times of war, and potential disruption to oil supply. Maybe it was the more targeted and localised nature of the conflict. Or maybe the broader macroeconomic fundamentals of weaker global growth (thanks to tariffs) tempering oil demand. It’s most likely a bit of both. But we also think markets may be becoming a bit desensitised to the constant stream of risk events that define today’s environment.

Meanwhile, movements across currencies continue to surprise us too. If we had spent the last 3 months deep in the Himalayan mountains, protecting endangered tigers, we would come out oblivious to market moves. If we were given the headlines only… we would have said the NZD should be in the low 50s (not 60s). Why? Well, a global trade war of such magnitude should hammer a (Kiwi) commodity currency. But it hasn’t. A soft USD, highly unusual in such an uncertain world, has many talking about a new world order, and the end of the USD as a reserve currency (See our COTW for more).

We’re facing into many headwinds. But we’re steadfast in our forecast for the Kiwi. We’re sticking with our call for 60c by year end. Yes, given our brave calls of the past and because the Kiwi is basically oscillating around 60c today, it sounds boring. But boring it is not. We expect to see a typically wide trading range around 60c. If downside risks dominate, we could see the Kiwi dip back below 57c. A move less likely with USD weakness. And then there are the upside risks… low in likelihood, but could see the Kiwi pop into the 62-63c range. So, there’s something for importers and exporters… and both will get their chance to play.

Our forecast for 2026 sees a move in the Kiwi up towards 63c, as the global economy recovers (we hope) with further rate cuts delivered. That’s our central scenario. Upside risks could see 65-67c (our 2027 forecast brought into 2026). But many are suggesting we’re entering a very different world. And it’s the beginning of the USD’s end. That’s hard to trade. Be sure to check out our latest FX tactical “Vexing volatility, unusual uncertainty, & polarising protectionism” for more on our outlook on the Kiwi dollar and other key currency pairs.

Here at home, we may have avoided a spike in petrol prices like we saw in the fallout of the 2022 Russia-Ukraine war. But households are still having to contend with a recent pick up in food inflation as well as climbing energy bills, council rates and insurance premiums. In an op-ed in The Post, our Chief Economist Jarrod Kerr, penned his thoughts on inflation and the cost-of-living crisis.

“The cost-of-living crisis has ravaged discretionary spending. It has been a volatile, and gruelling few (too many) years. And lower income households have been hit the hardest. Sharp spikes in inflation act like a tax. Households are forced to spend more on essentials, and must then cut back on discretionary spending elsewhere. That hurts.”

Check it out here – Where it hurts: my back pocket

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, it was a scramble to receive Kiwi

“A scramble to receive kiwi led to rates rallying around 10bps over the week. This interest largely coming from offshore participants to whom NZD was looking like an outlier relative to other markets with only 25bps of cuts priced into 2025 compared to the likes of Australia and the US with over 60bps.

However, it wasn’t all one-way traffic last week. The panel for the 2031s tap was announced Wednesday (with the potential for significant asset swap flow) and was closely followed by ASB changing their OCR call to a 3.00% terminal rate. This put a damper on the rally and saw a floor established around 3.15% in the 2yr.

As mentioned above, the big news in NZ fixed interest was the announcement of the panel for the tap of the 2031s. If history is any guide, we will see the deal launched this week. With most expecting NZDM to print around 6bio.

Next week is the July RBNZ meeting, where there is still only 20% of a chance of a cut priced with most still expecting a wait and see approach. Nothing since May meeting has been decisive either way. However, we do have QSBO this week and a soft or strong read could be enough see a reassessment of pricing for July.” Matthew Crowder, Balance Sheet Manager – Treasury.

In currencies, the focus has returned to the Fed

“Last week, markets saw a measure of calm return to financial markets by end of the week, with the risk of escalating Middle East tensions fading as the truce between Israel and Iran continued to hold. But despite this calm, it was another tumultuous week in currencies when you look at the Kiwi dollar day by day. We opened the week with the knowledge that the US had conducted a targeted strike on Iranian nuclear assets, and a potential escalation was looking possible. At the open, the Kiwi was trading close to a low of 0.5964. The Kiwi slipped to a brief low of 0.5890 following news that there was a retaliatory strike at a US Airforce base in Qatar. But by the time we hit mid-week, the US had managed to de-escalate the tensions in the Middle East with both Iran and Israel agreeing to a ceasefire. From that point, it was ‘risk on’ and the Kiwi was back at pre-risk event levels of 0.6030/40. And then the US dollar tanked following news that Trump would look to announce the next Federal Reserve chief as early as September/October. Ordinarily this would not be a market mover, but in the context of the pressure that Trump has been placing on the incumbent Chair to lower interest rates, the market view is that US rates are heading one way, and that’s lower. The prospect of the ‘Shadow Board’ influencing interest rate views for the US is coming to fruition already. The Kiwi got to a brief high of 0.6078 on Friday, and closed the week at 0.6055. The week ahead could see the Kiwi target the important 0.6125 level again, as the themes weakening the Greenback are likely to remain forefront of mind for traders. A solid break above this will open up the channel to 0.6375. NZDAUD is still within range at 0.9230-0.9285 last week, pretty much matching the week prior. There is not enough local news this week to drive the two antipodean currencies far beyond this range.” Mieneke Perniskie, Trader - Financial Markets.

Weekly Calendar

• Here at home, NZIER's latest Quarterly Survey of Business Opinion is the last key datapoint ahead of the RBNZ's July review. Business confidence has been thrown around by Trump's tariff announcements.
• Outside of tariff or Middle-East related headlines, market attention will be on the release of US PMI and employment data for the month June. The ISM surveys will likely show respondents experiencing a lift in costs due to tariffs. Although, recent regional Fed surveys have shown an improvement in production, shipments and supplier deliveries. Non-farm payrolls is expected to increase by 110k in June. With jobs growth likely falling behind growth in labour supply, the unemployment rate may tick higher to 4.3% from 4.2%.
• The latest CPI inflation data is the highlight of the European calendar this week. Euro-area inflation is expected to creep slightly higher in June, with market consensus picking headline to come in at 2%yoy, up from 1.9%. Tensions in the Middle East led to volatile energy markets, fuel prices rose only slightly and toward the end of the month. The bigger picture remains ones of a gradual disinflation process, given a moderation in wage pressures and weaker economic activity. Given the limited impact of the Middle East conflict on oil prices, the ECB should be able to cut rates in September.
• China June PMIs are due out this week, and will likely show an improvement in the index. The manufacturing PMI is expected to improve just marginally from 49.5 to 49.6 in June. However, there's upside risk following the truce in the US-China trade war. Shipments bound for the US extended a rebound beginning in mid-May. Non-manufacturing PMI is expected to remain unchanged at 50.3
• Central bankers are gathering in Portugal this week for the ECB Forum on Central Banking. Chiefs of the major central banks are scheduled to speak on a policy panel, featuring Jerome Powell (Fed Chair), Christine Lagarde (ECB President), Andrew Bailey (Bank of England Governor), Kazuo Ueda (Bank of Japan Governor), and Chang Yong Rhee (Bank of Korea Governor).

See our Weekly Calendar for more.