The New Zealand Dollar's slump runs into RBNZ inflation expectations
Monday's post-election bounce in the Kiwi lasted one session, and three straight falls since have put it back beside its lowest level in more than 18 months. NZD/USD is trading around 0.5550, and Thursday's low was only slightly lower.
New Zealand's currency has slipped to its lowest level in over 18 months, with the NZD/USD trading around 0.5550. Three consecutive declines since Monday have pushed the Kiwi back to its lowest point since late November. San Francisco Fed President Daly indicated that additional tightening measures may be required, and futures markets have already priced in a December 9 rate hike.
The Reserve Bank of New Zealand (RBNZ) maintained its official cash rate at 2.75% on October 28, while US interest rates hover between 3.75%-4.00%. Preliminary election results from November 7 show that National, ACT and New Zealand First hold a majority of seats, with nearly 400,000 votes remaining uncounted. Labour parties' addition to the RBNZ mandate could prompt lower rates for the Kiwi.
The manufacturing index for Business NZ fell to 54.9 in October from 56.5, exerting pressure on the RBNZ to follow the Fed's lead. The RBNZ's Financial Stability Report and quarterly survey of inflation expectations are set to be released on November 17, ahead of the next rate decision. Macroeconomic data releases in New Zealand, such as strong economic growth, low unemployment, and high confidence, can boost the value of the New Zealand Dollar (NZD).
Conversely, weak economic data is likely to lead to a depreciation of the NZD. The NZD generally strengthens during risk-on periods and weakens during market turbulence or economic uncertainty.
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