New Zealand Dollar Hits 2-Month Low

The New Zealand dollar dropped to around $0.576, reaching its lowest level in two months, as the US dollar strengthened amid expectations for the Federal Reserve to lift interest rates this week. The kiwi also faced some pressure from signs of weak domestic demand, with electronic card spending falling 0.9% from the previous month in August amid elevated petrol prices and borrowing costs. Attention now turns to New Zealand’s second-quarter GDP data on Thursday, with analysts expecting only modest growth. Markets are currently pricing in a 60% chance that the Reserve Bank will deliver another quarter-point rate hike at its October meeting, despite policymakers signaling that the pace of rate increases is set to slow.

The New Zealand dollar fell to around $0.578, hovering at its lowest level in seven weeks, as the intensifying Middle East conflict weighed on investor sentiment. Saudi Arabia has temporarily closed a crucial oil pipeline following drone attacks and an advance by Yemen’s Houthis highlighted mounting energy security risks. Further weighing on the kiwi, the greenback moved higher as elevated US inflation in August reinforced expectations that the Federal Reserve will raise interest rates later this week. Meanwhile, investors are awaiting New Zealand’s second-quarter GDP data for fresh clues on the health of the economy and the Reserve Bank’s policy path. The economy is expected to have grown at a sluggish pace in the three months to June, when businesses and consumers were grappling with sharply higher fuel prices. Markets are now pricing roughly even odds of a third rate hike in October, although the RBNZ has indicated that it would take a measured approach to any further tightening.

The New Zealand dollar stabilized around $0.580 after falling 0.7% overnight to its lowest level since late July, as the US dollar firmed amid increased expectations of a Federal Reserve rate hike next week. Also weighing on the kiwi is a dovish shift in the Reserve Bank of New Zealand’s policy outlook, with recent comments from policymakers reinforcing the central bank’s gradual approach to further tightening. Markets now largely expect the RBNZ to leave interest rates unchanged in October, although a December hike remains almost fully priced in. On the data front, growth in New Zealand’s manufacturing sector slowed in August, with businesses pointing to cost-of-living pressures and the Middle East conflict as headwinds to activity. The kiwi is down more than 1% this week, heading for its third consecutive weekly decline.