New Zealand Dollar grinds lower as US bond yields climb to new highs
The Reserve Bank of New Zealand (RBNZ) has its Official Cash Rate (OCR) at 2.75%, and markets now price at least a 75% chance that it goes to 3% on October 28, against about 30% right after the September 2 hike. NZD/USD is trading just above 0.5650, its lowest since late June.
New Zealand's currency, the Kiwi, has experienced a significant decline as US bond yields reach record highs. The Reserve Bank of New Zealand (RBNZ) maintains its Official Cash Rate (OCR) at 2.75%, with a high probability of raising it to 3% on October 28. This increase, coupled with a stronger US Federal Reserve (Fed) stance, has pushed the NZD/USD exchange rate to its lowest since late June, trading just above 0.5650.
The RBNZ governor stated that near-term inflation may exceed forecasts if crude oil prices persistently remain high, as reflected in the currency's decline. New Zealand's fuel imports are directly impacted by Brent crude oil prices, which have surpassed $106 a barrel. The RBNZ's rate hike forecast, published earlier in September, suggests a pause in October and a hike in December, giving markets a head start before the Fed's decision.
The Fed's range is now 3.75%-4.00%, with futures indicating a more than even chance of a quarter-point increase in October. For the Kiwi to benefit from interest rate differentials alone, the RBNZ must hike while the Fed remains steady. While US releases like durable goods orders and the Personal Consumption Expenditures (PCE) price index may influence the NZD, the market's expectations of a 75% chance of an RBNZ hike by October weigh heavily on the currency's downward trajectory.
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