New Zealand weakens as US Dollar holds ground ahead of PPI data release
- NZD/USD depreciates as strong US CPI data lifts December Fed rate hike odds to 87%.
- Traders await Friday’s US PPI report for further inflation clues, with headline prices projected to rise 6.6% annually.
- New Zealand's Unemployment Rate climbed to an 11-year high of 5.7%, dampening bets for aggressive RBNZ rate hikes.
NZD/USD continues its losing streak for the fourth consecutive day, trading around 0.5540 during Asian hours on Friday. The pair holds losses as the US Dollar (USD) remains steady on persistent inflation concerns and expectations of tighter monetary policy.
Stronger-than-expected US Consumer Price Index (CPI) data released earlier this week has reinforced forecasts for a Federal Reserve rate hike in December, particularly after Fed Governor Christopher Waller noted that a 50-basis-point increase should be considered if core inflation stays elevated.
According to the CME FedWatch tool, traders are now pricing in nearly 87% odds of a 25-basis-point hike at the central bank's December 8–9 meeting, alongside a 13.13% probability of a half-point increase.
Traders are now turning their attention to Friday’s US Producer Price Index (PPI) report for further clarity on the Fed's rate path, with October headline PPI expected to rise 6.6% year-on-year and core PPI projected to increase 5.0%.
New Zealand's Unemployment Rate climbed to an 11-year high of 5.7%. This weak labor data has dampened bets for aggressive RBNZ rate hikes, weighing on the kiwi dollar.
NZD supported as New Zealand election outcome backs RBNZ’s single mandate
Analysts at Brown Brothers Harriman highlight that New Zealand’s ruling center-right coalition “holds a one-seat majority following Sunday’s election, with final results due November 27.” They note that the incumbent coalition led by the National Party “wants to stick to the RBNZ’s sole price stability mandate, which has been in place since December 2023,” in contrast to the Labour Party, which “ran on a proposal to return to a dual inflation-employment mandate.” BBH suggests this policy divergence is helping underpin NZD, as the current framework is seen as limiting the risk of a more dovish stance from the central bank.
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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