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Kiwi businesses don't look ready to pass on cost increases. That's good for consumers and the Reserve Bank.
The New Zealand dollar outlook rests with how global sentiment regarding the war in the Middle East pans out and what the Reserve Bank of New Zealand (RBNZ) does to interest rates.
The assumption that the Bank will raise rates in response to rising inflation has supported the NZD for much of 2026, but that could change if the RBNZ opts to keep rates on hold.
On Thursday, we received a crucial piece of information on the matter: businesses don't seem inclined to pass on costs to consumers.
ANZ's monthly business confidence report showed an easing in expected wages in April, both in terms of the size of expected increases and the net percent of firms expecting to raise their wages.
"That isn't good news for workers, but it is good news from an inflation-fighting point of view, as all else equal, it lowers the risk of the inflation shock becoming persistent via wage dynamics," says Sharon Zollner, Economist at ANZ.
The survey also showed that inflation indicators continued to trend higher with a sharp lift in expected costs and inflation expectations, thanks to the effects of the war.
However, pricing intentions dipped slightly in the month.
"The RBNZ will be somewhat reassured by pricing intentions not rising any further," says Zollner.
The incoming data suggests the 2026 energy shock is different to that of 2022 and the immediate post-COVID period, where inflation snowballed.
Back then, households were able to command higher wages, and businesses could hike their prices, knowing households had savings and interest rates were low.
But fast-forward to 2026 and the situation is very different as businesses know there's limited scope to pass costs on while employees face a more uncertain jobs market.
This could allow the RBNZ to sit on current interest rates for longer.
If so, a 'dovish' repricing in Kiwi interest rate bets would act as a headwind to the NZ dollar.