New Zealand Dollar Remains Subdued

The New Zealand dollar remained at a three-month low around $0.564 and is on track for a monthly decline of more than 4%. The kiwi started September tough, partly as the Reserve Bank of New Zealand signaled a less hawkish rate outlook than markets had anticipated. It was further weighed down by a strengthening US dollar amid rising expectations for more Federal Reserve rate hikes. More recently, however, the spike in oil prices has increased upside risks to inflation, which prompted traders to ramp up bets on another rate hike in October. Governor Anna Breman also warned last week that persistently high oil prices could push near-term inflation above the central bank’s latest forecast. Meanwhile, data out today showed New Zealand’s business confidence weakened in September, dented by a surge in fuel prices, highlighting the challenges facing the economy.

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 that could prompt further monetary tightening by global central banks. At home, markets largely expect the Reserve Bank of New Zealand 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.