Kiwi Dollar Drops Further Ahead of Fed Decision

The New Zealand dollar fell further to $0.574, its lowest level in over two months, as traders prepared for a widely anticipated Federal Reserve rate hike later today, supporting the US dollar. Markets will also watch the Fed’s updated dot plot and economic projections for clues on future rate moves. Investors’ attention is also on New Zealand’s second-quarter GDP data on Thursday, with economists expecting only modest growth from the previous quarter. Market pricing currently implies another rate hike from the Reserve Bank at its October meeting, even as policymakers signaled a slower pace of rate increases. Meanwhile, RBNZ Assistant Governor Karen Silk has resigned after more than four years with the bank. Silk will participate in two more MPC meetings before departing in mid-December.

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 economists 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.