New Zealand Dollar Holds Decline

The New Zealand dollar traded around $0.585 after two consecutive sessions of modest losses, as markets reassessed the interest-rate outlook from the Reserve Bank of New Zealand. The kiwi remained pressured by the RBNZ’s dovish rate hike last week and recent comments from policymakers have also pointed to a more cautious approach to further tightening, with some appearing increasingly concerned about economic growth. Markets now imply around an 80% chance of the central bank leaving rates unchanged in October, while a December increase remains largely priced in. The kiwi dollar also struggled at a 13-year low against the Australian dollar, amid diverging monetary-policy paths between the neighboring nations, though both currencies received some support from a weaker US dollar.

The New Zealand dollar edged down to $0.585, 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.