New Zealand Dollar Wallows Near 3-Month Low

The New Zealand dollar traded around $0.566, its lowest level since late June, weighed down by a firm US dollar. A run of robust US economic data and hawkish remarks from Federal Reserve officials has strengthened expectations for further rate hikes, supporting the greenback. Meanwhile, President Donald Trump’s rejection of an Iranian proposal to reopen the Strait of Hormuz pushed oil prices higher, raising inflation concerns globally that could prompt further monetary tightening by central banks, including the Reserve Bank of New Zealand. Currently, traders largely expect the RBNZ to deliver a third rate hike in October, after Governor Anna Breman warned last week that persistent increases in oil prices could push near-term inflation somewhat above the central bank’s latest forecast. However, the US dollar’s strength amid a hawkish Fed outlook continued to outweigh support from rising RBNZ rate-hike expectations.

The New Zealand dollar held around $0.565, hovering at its lowest level since late June, as a robust US dollar keeps pressure on the kiwi. The greenback reached its strongest level in nearly two months, as stronger-than-expected PMI data fuelled concerns over inflation and strengthened expectations for more interest-rate hikes. Several Fed officials have also voiced broader concerns about persistent inflation risks, saying that rate increases are likely needed. The hawkish Fed outlook overshadowed rising expectations for further tightening by the Reserve Bank of New Zealand. Markets are now pricing in an 84% chance of a third hike in October, up sharply from 20% earlier this month, following Governor Anna Breman’s warning that sustained oil price increases could push near-term inflation above the central bank’s latest forecast. The kiwi has fallen 1% so far this week, putting it on track for a fifth consecutive week of declines.

The New Zealand dollar fell 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.