New Zealand Dollar traders price in a third straight RBNZ hike
- NZD/USD stops just above 0.5700 for a fourth session and ends below it.
- TD Securities now expects three RBNZ hikes to 3.50%, and the Kiwi still slips.
- The RBNZ is expected to raise rates to 3.00% Wednesday, ahead of the election.
TD Securities dropped its call for a Reserve Bank of New Zealand (RBNZ) pause and now expects three hikes, and NZD/USD still fell on Monday. It stopped just above 0.5700 for a fourth straight session and ended below that level, as traders bought Dollars before the Fed's Wednesday decision.
Traders put a quarter-point RBNZ hike to 3.00% near 90%, and 22 of 27 economists in a Reuters poll expect it. With the hike already in the price, the Kiwi's case rests on what comes after. Nine of 23 economists in the same poll see another rise to 3.25% in December.
Third-quarter inflation slowed to 3.7%, under the RBNZ's own 3.9% forecast. The hike is expected anyway, because economists see fuel costs and the weaker Kiwi taking inflation back above 4% in the fourth quarter. That makes the Kiwi's own weakness part of the case for the hike.
On the calendar
The RBNZ's decision and Monetary Policy Review are due at 01:00 GMT on Wednesday, with the cash rate forecast to rise to 3.00% from 2.75%. That's ten days before New Zealand's November 7 election. The RBNZ's forecast for its own rate covers the December and February meetings that TD's call rests on.
The Fed is expected to keep its 3.75%-4.00% range on Wednesday, with the statement at 18:00 GMT and Fed Chair Warsh's press conference after it. That range is already above the 3.00% the RBNZ is expected to reach, and September durable goods orders on Tuesday are forecast to rise 0.6%.
On the charts
NZD/USD's climb since its October 14 low just above 0.5550 has stalled under the 50-day Exponential Moving Average (EMA), with the 200-day just under 0.5800. Monday's drop gave back about a fifth of that climb. Daily momentum is overbought for the first time since late July.
NZD/USD daily chart
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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