New Zealand Dollar Hovers Near 1-Month High

The New Zealand dollar edged up to $0.569, trading near a one-month high, as expectations of further monetary tightening by the Reserve Bank supported the currency. Although inflation eased slightly more than expected in the third quarter, analysts expect price pressures to pick up again, potentially pushing inflation well above 4% in the fourth quarter and keeping it outside the RBNZ’s 1-3% target range for longer than previously anticipated. This outlook was reinforced by rising energy prices amid heightened tensions in the Middle East. Markets are almost certain that the central bank will deliver a third rate hike next week, bringing the OCR to 3.0%. Beyond that, some economists project the OCR to climb to 3.75% by the first quarter next year or peak at 4% in the second half of 2027. The kiwi has gained about 0.7% this week, marking its second consecutive weekly advance.

The New Zealand dollar edged down to $0.568 after inflation data came in slightly below expectations, though the currency remained near a one-month high. Annual inflation eased to 3.7% in the third quarter from 4.1% in the previous quarter, below the forecast of 3.8% and the Reserve Bank's own projection of 3.9%. On a quarterly basis, the CPI rose 0.7%, compared with 1.5% in the second quarter and less than the 0.8% estimate. Despite the slowdown, inflation remains above the RBNZ’s 1-3% target range. Core inflation also remained sticky, reinforcing expectations of another rate increase next week. The slowdown in price pressures is also expected to be temporary, with some economists anticipating inflation to pick up again in the fourth quarter as escalating tensions in the Middle East drive up fuel costs. Markets are almost fully pricing in another quarter-point rate hike at the central bank’s upcoming meeting.

The New Zealand dollar traded around $0.568, its highest level in four weeks, supported by expectations of more interest rate hikes, while investors await the third-quarter inflation report due on Thursday. Latest data showed New Zealand's services sector growth slowed slightly in September, while the trade deficit widened more than expected, highlighting the fragility of the domestic recovery. Markets are largely pricing in a third consecutive rate hike next week, which would lift the policy rate to 3%, with further increases expected to push rates to 3.75% or higher next year, well above the RBNZ’s estimate of 3.20%. Last week, Chief Economist Paul Conway said the late-October decision remained open, adding that the central bank still viewed a higher official cash rate as the most likely next move, but had not decided on the timing. The inflation report will therefore be crucial in assessing whether further tightening is warranted.