New Zealand Dollar Edges Lower

The New Zealand dollar edged down to $0.587 on Monday after falling 0.6% last week, as the Reserve Bank of New Zealand’s cautious approach to further monetary tightening weighed on the currency. The RBNZ raised its official cash rate for a second consecutive meeting last week, but signalled that future increases would be gradual amid increasing risks to the economic outlook. Governor Anna Breman said the bank wants time to assess how previous rate hikes feed through to the real economy, while Assistant Governor Karen Silk indicated that policymakers are more likely to wait until December before raising rates again, prompting investors to reassess future interest-rate moves. Markets are now pricing an 80% chance of a pause in October, while a December hike remains largely priced in.

The New Zealand dollar rose to around $0.589 on Friday, extending gains from the previous session as the US dollar came under pressure following comments from Federal Reserve Governor Christopher Waller. Waller said he would support leaving interest rates unchanged if inflation pressures continued to ease, prompting investors to trim bets on a Fed rate hike later this month. Meanwhile, the Reserve Bank of New Zealand raised interest rates for a second consecutive meeting earlier this week but signalled a less aggressive path for further tightening. RBNZ Assistant Governor Karen Silk said today the central bank is more likely to delay its next rate hike until December, while reiterating that the RBNZ is not on a predetermined path. Markets are pricing in just a 31% chance of a hike in October, while a December increase is largely factored in. Despite its recent gains, the kiwi is down 0.5% this week, on track for a second straight weekly loss.

The New Zealand dollar traded around $0.585 on Thursday after falling 0.7% in the previous session to as low as $0.580, its weakest level since July 30, amid a cautious Reserve Bank of New Zealand tightening outlook. The central bank raised its official cash rate by 25 basis points to 2.75% on Wednesday, marking a second consecutive hike and bringing the rate to its highest level in a year. The move was widely expected as policymakers continued to address above-target inflation. Although the RBNZ indicated the cash rate may need to increase further, its forward guidance was interpreted as more cautious than markets had anticipated. Governor Anna Breman also stressed that there is no predetermined path for monetary policy and that the timing of any further rate hike remains highly uncertain. That prompted markets to price in a hold at the RBNZ’s next meeting next month.