New Zealand dollar holds ground as RBNZ out-hawks Fed

The New Zealand currency held its ground on Thursday in the face of a firm U.S. dollar, as an unexpected rise in local retail sales further pushed out bets of rate cuts this year following strongly hawkish guidance from its central bank.

The kiwi dollar NZDUSD rose 0.2% to $0.6107, having managed to hold steady overnight as the greenback made broad advances thanks to hawkish Federal Reserve minutes showing that "various participants" conveyed a willingness to tighten policy further to tame inflation.

The currency now faces resistance at the $0.6140 level after hitting a two-month high of $0.6152 a day earlier as the Reserve Bank of New Zealand signalled rate cuts were unlikely until late 2025 due to stubborn inflation.

The Australian dollar AUDUSD had less luck and was last flat at $0.6619, after tumbling 0.7% overnight, not helped by lower commodity prices. It is now back in the recent trading range of $0.6465 and $0.6650.

Data released on Thursday showed that retail sales volumes in New Zealand rose 0.5% in the first quarter, countering expectations for a small drop, which most likely provided a boost to the economy after two quarters of contraction.

"Today's data is in the ballpark of our Q1 GDP forecast of 0.2% q/q, but if we had to pick a side, we'd say it presents some very modest upside risk to this," said Miles Workman, a senior economist at ANZ.

In line with the hawkish pricing for the Fed after the minutes, investors further reduced their expectations for an October rate cut in New Zealand to an implied probability of just 34% from 60% a day earlier, leaving November the most likely month for an easing.

The kiwi continued to gain on the Aussie as bets of diverging rate outlook between New Zealand and Australia unwound. The Australian dollar AUDNZD fell 0.2% to NZ$1.0835, the lowest in two months, after a 0.7% fall overnight.