New Zealand Dollar Weakens

The New Zealand dollar slipped to around $0.59 on Tuesday, hovering at a two-week low, as cautious investor sentiment overshadowed expectations of a rate hike at home. Global bond yields rose to multi-decade highs as concerns over higher inflation fueled expectations of a Federal Reserve interest-rate increase later this month, curbing appetite for riskier assets. At the same time, fresh fighting in the Middle East also pressured currencies of economies exposed to higher energy costs. Limiting the kiwi’s losses, the Reserve Bank of New Zealand is widely expected to raise its official cash rate by 25 basis points to 2.75% on Wednesday. Markets also anticipate the OCR to reach around 3% by December and 3.5% next year, particularly after the central bank signaled that monetary policy needs to become less accommodative.

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.