New Zealand Dollar Falls After Weak Jobs Report

The New Zealand dollar edged down to $0.568 after inflation data came in slightly below expectations, though the currency remained near a one-month high. Annual inflation eased to 3.7% in the third quarter from 4.1% in the previous quarter, below the forecast of 3.8% and the Reserve Bank's own projection of 3.9%. On a quarterly basis, the CPI rose 0.7%, compared with 1.5% in the second quarter and less than the 0.8% estimate. Despite the slowdown, inflation remains above the RBNZ’s 1-3% target range. Core inflation also remained sticky, reinforcing expectations of another rate increase next week. The slowdown in price pressures is also expected to be temporary, with some economists anticipating inflation to pick up again in the fourth quarter as escalating tensions in the Middle East drive up fuel costs. Markets are almost fully pricing in another quarter-point rate hike at the central bank’s upcoming meeting.

The New Zealand dollar traded around $0.568, its highest level in four weeks, supported by expectations of more interest rate hikes, while investors await the third-quarter inflation report due on Thursday. Latest data showed New Zealand's services sector growth slowed slightly in September, while the trade deficit widened more than expected, highlighting the fragility of the domestic recovery. Markets are largely pricing in a third consecutive rate hike next week, which would lift the policy rate to 3%, with further increases expected to push rates to 3.75% or higher next year, well above the RBNZ’s estimate of 3.20%. Last week, Chief Economist Paul Conway said the late-October decision remained open, adding that the central bank still viewed a higher official cash rate as the most likely next move, but had not decided on the timing. The inflation report will therefore be crucial in assessing whether further tightening is warranted.

The New Zealand dollar rose to $0.565 on Friday, extending its rebound from an 18-month low as the US dollar weakened amid falling Treasury yields. The kiwi is also supported by growing expectations of another rate hike from the Reserve Bank of New Zealand, with markets pricing in an 86% chance of a third increase to 3% on October 28. On Thursday, Chief Economist Paul Conway said the rate decision later this month remains open and that the central bank continues to believe that an increase in the OCR is most likely, although the timing remains uncertain. Meanwhile, data released today showed that New Zealand's electronic retail card spending fell 0.4% month on month in September, while food inflation accelerated to 2.4%, highlighting persistent price pressures. Market attention now turns to next week’s third-quarter inflation data for further clues on the monetary policy outlook. The kiwi has gained about 0.6% this week, on track to snap a seven-week losing streak.