New Zealand Dollar inches lower as NZIER backs steady OCR

NZD/USD depreciates after opening at a higher level from the previous close, still remaining in the positive territory and trading around 0.5870 during the Asian hours on Monday. The New Zealand Dollar struggles against the US Dollar (USD) after a majority of the NZIER shadow board members backed holding New Zealand's Official Cash Rate at 2.25% on the May 27 policy decision.

NZIER shadow board members who favored holding the rate steady emphasized that the current oil price shock is supply-driven rather than demand-driven. They also pointed to softening economic indicators, noting that unemployment is heading toward 5.6% and the previous quarter's GDP growth sat at a sluggish 0.2%. Conversely, a minority of three members argued that monetary tightening should begin immediately, highlighting that real interest rates have remained low or negative for an extended period alongside rising inflation pressures.

The NZD/USD pair holds gains as the US Dollar loses ground on fading safe-haven demand amid increasing optimism over a potential US-Iran agreement, which has eased broader market concerns about inflation and impending Fed interest rate hikes.

An Axios report cited a US official, the United States (US), and Iran are close to signing an agreement that involves a 60-day ceasefire extension. Under this proposed deal, the Strait of Hormuz would be reopened, and Iran would agree to clear mines it deployed in the waterway while allowing ships to pass freely. In exchange for these actions, the United States would lift its current blockade on Iranian ports.

Meanwhile, investors are continuing to assess the future outlook for Federal Reserve (Fed) policy. This caution comes after Federal Reserve Governor Christopher Waller signaled that he no longer believes the central bank should retain an easing bias in its official policy statement, adding another layer of complexity to the global economic landscape.