Kiwi dollar slides as soft data and shaky sentiment weigh
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Daily Currency Update
The risk-sensitive New Zealand dollar is having a tough week, emerging as one of Wednesday’s weakest performers as global markets turn cautious and local economic data underwhelms. The NZD slipped nearly 0.5% against the US dollar during the session, touching lows around US$0.5625 - only a shade above last week’s seven-month trough of US$0.5605. With investors increasingly reluctant to hold risk-oriented currencies, the NZD has struggled to find support. A key driver of the recent weakness is a softer-than-expected set of producer price figures released on Tuesday. New Zealand’s official statistics agency reported that Producer Price Index (PPI) input costs rose just 0.2% over the three months to September. This marks a notable slowdown from the previous quarter’s 0.6% increase and falls well short of market expectations for a stronger 0.9% gain. Output prices also lacked momentum, growing at a steady 0.6% and missing forecasts that anticipated a mild pickup to 0.7%. While producer price data may not always grab headlines, it plays an important role in shaping inflation trends. Lower input and output costs suggest that pipeline price pressures are easing, which in turn reduces the likelihood of near-term inflation surprises. For the Reserve Bank of New Zealand (RBNZ), this adds another piece to the puzzle as it evaluates the balance between inflation control and economic stability. The softer PPI figures follow several recent updates that paint a cooler picture of the New Zealand economy. The RBNZ confirmed that inflation expectations for the final quarter of the year remain well-anchored near 2%, a level consistent with its long-term policy target. Meanwhile, the labour market —once a source of strong economic momentum—has started to show clearer signs of slowing. Unemployment rose to 5.3% in the third quarter, its highest level in nine years, indicating that demand for workers is easing as businesses adjust to softer conditions. Together, these developments have strengthened market expectations that the RBNZ could opt for another interest rate cut at its meeting next week. With inflation pressures cooling and the labour market losing steam, investors see growing room for the central bank to offer additional support to the economy. That said, any policy decision will still need to balance the risks of cutting too soon against the potential benefits of easing financial conditions. For the NZD dollar, the combination of weaker local data, a softer global risk backdrop, and rising expectations of monetary easing is creating a challenging environment. Until markets regain confidence or domestic indicators show firmer momentum, the NZD may continue to face downward pressure.Key Movers
The US dollar is enjoying a period of steady strength, with the US Dollar Index (DXY) holding close to recent highs as investors reassess the likelihood of interest rate cuts from the Federal Reserve. After several months of shifting expectations, markets are now leaning toward a more cautious outlook, tempering earlier assumptions that the Fed would begin easing policy before the end of the year. This shift has given the dollar a firm footing, especially as global uncertainty continues to lift demand for safe-haven assets. A key driver behind the dollar’s resilience has been the steady flow of US economic data, which continues to paint a picture of a labour market that, while cooling, remains healthier than many anticipated earlier in the year. Job creation has moderated from its peak, and wage growth has slowed to a more sustainable pace. Yet these developments have not been enough to signal that the economy is losing momentum rapidly, reducing the urgency for the Fed to deliver swift or aggressive rate cuts. All eyes are now on the upcoming Nonfarm Payrolls (NFP) report for September, scheduled for release on Thursday. Markets see this as a crucial checkpoint for confirming whether the labour market is cooling at a pace consistent with returning inflation to the Fed’s 2% target. Stronger-than-expected job growth could reinforce the Fed’s cautious stance, extending the dollar’s support. On the other hand, a notably weak print might revive the case for a December rate cut, though most traders acknowledge that one set of numbers is unlikely to prompt a dramatic shift in policy expectations. At the moment, the CME FedWatch tool shows a 49% probability of a 25-basis-point rate cut at the December meeting—a notable retreat from the 67% probability priced in just a week ago. This swing highlights how sensitive markets remain to both incoming data and changing narratives around inflation and financial conditions. It also reflects a growing sense that the Fed may prefer to wait for clearer evidence that inflation pressures are easing in a durable and broad-based way before taking action. These shifting expectations have broader implications across global currency markets. With other central banks either signalling readiness to ease or already beginning their cutting cycles, the relative policy advantage has tilted back toward the US. As long as the Fed maintains its steady, data-dependent approach, the dollar is likely to remain supported, especially in periods when risk sentiment weakens. For now, investors are largely in “wait-and-see” mode. The upcoming jobs report will offer valuable guidance, but the bigger picture remains one of cautious optimism: an economy still growing, inflation gradually cooling, and a central bank in no rush to pivot.Expected Ranges
- NZD/USD: 0.5500 - 0.5700 ▼
- NZD/EUR: 0.4750 - 0.4950 ▼
- GBP/NZD: 2.3200 - 2.3400 ▲
- NZD/AUD: 1.1450 - 1.1650 ▼
- NZD/CAD: 0.7750 - 0.7950 ▼