New Zealand Dollar Dips to 11-Week Low

The New Zealand dollar slipped to $0.570 on Wednesday, erasing the previous session’s gains to hit an eleven-week low, as the US dollar strengthened amid hawkish Federal Reserve rhetoric. Richmond Fed President Tom Barkin warned that inflationary shocks could take time to fade. His comments followed those of other Fed officials who have broadened their concerns about persistent inflation, reinforcing the case for further policy tightening. This outweighed growing expectations on additional interest rate hike by the Reserve Bank of New Zealand. Markets have increased bets on a third rate hike to 3.0% at the RBNZ’s October meeting to 75%, after Governor Anna Breman warned that persistent increases in oil prices could push near-term inflation somewhat above the central bank’s latest forecast. However, her emphasis on an uneven economic recovery underscored the challenge of balancing inflation risks with still-fragile domestic growth.

The New Zealand dollar rose to around $0.574 on Tuesday, rebounding from an over ten-week low, after Reserve Bank Governor Anna Breman cautioned that near-term inflation could be somewhat higher than the bank's latest forecast if recent increases in oil prices persist. She also noted that while the economy was showing signs of growth, the recovery remains uneven across the country. Her remarks led markets to raise bets on a third hike to 3.0% next month to 75% from 60% a day prior, with four hikes now priced in by the second half of next year. The central bank raised its cash rate earlier this month but signalled that further tightening would be gradual. Limiting the kiwi's upside, the US dollar remained firm amid hawkish Federal Reserve commentary. Meanwhile, traders await the US-China summit this week for signs of progress on trade, with any positive developments potentially improving risk appetite and supporting the kiwi, given New Zealand's strong trade ties with China.

The New Zealand dollar traded around $0.571 on Monday, near a ten-week low, as traders looked to a US-China summit later this week for indications on the state of relations between the world’s two largest economies. Among the key areas under discussion are an extension of the current tariff truce, which is set to expire on November 10, further tariff reductions, agricultural purchases, and AI. Any positive developments could improve global risk sentiment and support the kiwi, given that China is New Zealand’s largest trading partner. The kiwi has been under pressure since the Reserve Bank of New Zealand raised its cash rate earlier this month but signalled a more gradual pace of future tightening. Still, markets largely expect the central bank to hike rates again in October, as the recent spike in oil prices has increased upside inflation risks. Meanwhile, a firmer US dollar, supported by expectations of more Fed rate hikes, has added to downward pressure on the kiwi.