New Zealand Dollar Extends Pullback

The New Zealand dollar climbed to around $0.605, moving back toward a seven-month high after a two-day decline, as markets increasingly priced in expectations that the RBNZ will start raising rates later this year. Attention has now turned to labor market data due this week, with the Q4 unemployment rate expected to hold at 5.3%, its highest level since 2016, while employment is forecast to grow by 0.3%. While the data may justify delaying policy tightening until the second half of the year, above-target inflation and firming economic growth leave little doubt that the next policy move will be a rate hike. Policymakers meet on February 18, marking the first decision under new Governor Anna Breman, who is expected to outline her policy vision. Meanwhile, gains were capped by renewed strength in the US dollar after President Donald Trump nominated Kevin Warsh as Fed chair, a move markets view as hawkish and less supportive of aggressive rate cuts.

The New Zealand dollar edged lower to around $0.602, extending its pullback from a seven-month high in the previous session, as the US dollar regained strength. The greenback rebounded after President Donald Trump nominated Kevin Warsh as Fed chair, a move markets view as hawkish and less supportive of aggressive rate cuts. Meanwhile, investors continued to assess the Reserve Bank of New Zealand’s policy outlook, as upbeat recent data, particularly an upside surprise in inflation, reinforced expectations that the central bank may begin tightening later this year, though July is seen as the earliest window for a move. Attention now turns to this week’s quarterly labor market data, with employment forecast to rise 0.3% q/q and the unemployment rate expected to hold at 5.3%. Policymakers meet on February 18, marking the first decision under new Governor Anna Breman, who is expected to outline her policy vision.

The New Zealand dollar fell to around $0.604 on Friday but remained on track for a solid monthly rise, supported by increased bets of a near-term interest rate hike. Strong economic data, particularly last week’s upside surprise in inflation, has reinforced market views that the Reserve Bank of New Zealand may begin tightening policy later this year, lifting the kiwi to a seven-month high on Thursday. Data this week also showed that consumer confidence rose in January to its highest level since August 2021, while the trade surplus widened more than forecasts. While the RBNZ is widely expected to hold rates steady at its February meeting, markets are increasingly pricing in a hike as early as July, with a high probability of a move by September. The NZD also benefited from weakness in the US dollar, as President Trump’s fresh tariff threats added to global tensions, which reduced demand for US assets. The kiwi has risen over 1% this week and is up around 5% so far this January.