Kiwi Dollar Edges Up Ahead of RBNZ Decision

The New Zealand dollar edged up to $0.592 on Monday, recovering some of its losses from the previous session as investors turned their focus to the Reserve Bank of New Zealand’s upcoming policy decision. The RBNZ is widely expected to raise its cash rate by another 25 bps later this week, with the OCR seen reaching 3% by December and 3.5% next year, particularly after the central bank signalled that monetary policy needs to become less accommodative. On the data front, New Zealand’s business confidence eased slightly in August from July’s five-month high but stayed strong overall. However, gains in the kiwi were limited by a firm US dollar after hawkish comments from Federal Reserve Chair Kevin Warsh fueled bets for a September rate hike. The resulting increase in US rate expectations could keep pressure on the kiwi despite the RBNZ’s tightening outlook.

The New Zealand dollar weakened toward $0.59, touching its lowest level since August 19, as investors favored the US dollar following Federal Reserve Chair Kevin Warsh’s first Jackson Hole speech, despite expectations that the Reserve Bank of New Zealand will continue tightening policy this year. In his first major speech since becoming Fed chair in May, Warsh warned that inflation has not meaningfully slowed and said policymakers need to be confident that underlying price pressures are easing; otherwise, the central bank still has “work to do.” In New Zealand, economists widely expect the RBNZ to raise its cash rate by another 25 basis points at its September meeting, with around two-thirds anticipating at least one more hike. This could take the policy rate to 3% or higher by December. The outlook follows the RBNZ’s first rate increase in more than three years in July, when policymakers indicated that further tightening may be needed to bring inflation back to target.

The New Zealand dollar rose to around $0.596 on Friday, supported by expectations that the Reserve Bank will continue to tighten policy this year. Economists widely expect the RBNZ to raise its cash rate by another 25 basis points next week, with two-thirds anticipating at least one more hike, potentially taking the rate to 3% or higher by December. The outlook follows the RBNZ’s first rate increase in more than three years in July, when the central bank indicated that further tightening may be needed to bring inflation back to its target. Externally, investors are awaiting Federal Reserve Chair Kevin Warsh’s first Jackson Hole speech later today for clues about the likelihood of a September rate move. Meanwhile, geopolitical developments continue to weigh on risk-sensitive assets, with reports that President Trump is no longer interested in reviving the June agreement with Iran. Despite Friday’s advance, the kiwi is down 0.2% for the week.