The New Zealand Dollar holds near its lows while business confidence jumps
New Zealand's firms are more upbeat and raising fewer prices, and the second half of that matters more for the Kiwi. NZD/USD trades just above 0.5600 after a fresh low beneath it, back near its November 2025 low.
New Zealand's firms are exhibiting optimism and are not raising prices as much, contributing to the country's weaker currency. The New Zealand Dollar (NZD) traded near its lowest levels, just above 0.5600, after hitting a new low beneath it. According to the New Zealand Institute of Economic Research (NZIER) survey, 43% of firms expect business conditions to improve, up from 8% in the previous survey.
Only 47% of firms reported higher costs, down from 54%, and fewer firms increased their prices. This decrease in price hikes reduces the risk of fuel inflation spreading to other areas. The Reserve Bank of New Zealand (RBNZ) increased its Official Cash Rate (OCR) to 2.75% in September, marking its second hike since July. Traders anticipate a potential third hike on October 28, which supports the NZD against the US Dollar.
However, softer pricing in the survey weakens these bets. The RBNZ may still raise interest rates on October 28, although its September rate track suggests a pause. The New Zealand Dollar's value is influenced by the health of the New Zealand economy, the country's central bank policy, and China, New Zealand's largest trading partner.
Additionally, dairy prices, being New Zealand's main export, impact the NZD. The RBNZ aims for an inflation rate between 1% and 3% over the medium term, setting interest rates accordingly. When inflation is high, the RBNZ raises interest rates to cool the economy but also makes bond yields higher, increasing investors' appeal and boosting the NZD.
Conversely, lower interest rates weaken the NZD. Macroeconomic data releases in New Zealand are crucial to assess the economy's state and impact the NZD's valuation. A strong economy, characterized by high growth, low unemployment, and high confidence, is favorable for the NZD. Conversely, weak economic data can lead to a depreciation of the NZD.
The NZD tends to strengthen during risk-on periods and weaken during market turbulence or economic uncertainty.
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