Kiwi dollar steady as weak data fuels rate cut expectations
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Daily Currency Update
The New Zealand dollar (NZD) traded slightly higher against the US dollar (USD) on Wednesday, with the NZDUSD pair hovering near 0.5666 at the time of writing, up around 0.18% on the day. Despite the modest gain, sentiment toward the NZD remains subdued as investors weigh the possibility of a near-term rate cut by the Reserve Bank of New Zealand (RBNZ) amid signs of a slowing domestic economy. Recent economic indicators from New Zealand have painted a cautious picture. The latest Inflation Expectations report, released on Tuesday, held steady at 2.8% for the fourth quarter, suggesting that inflation pressures may be easing but are not yet fully under control. Meanwhile, labour market data for the third quarter showed clear signs of cooling, with job creation stalling and the unemployment rate climbing to 5.3% — the highest level in nine years. These developments highlight the growing strain on the economy as higher interest rates continue to weigh on business activity and household spending. Against this backdrop, financial markets are increasingly betting that the RBNZ will pivot toward policy easing sooner rather than later. Current market pricing reflects a strong likelihood of a 25-basis-point rate cut at the December policy meeting, which would lower the official cash rate to 2.25%. Some analysts are even entertaining the possibility of a deeper 50-basis-point move if incoming data continue to signal weakness across key sectors. However, any policy shift is expected to be carefully calibrated. The RBNZ has consistently emphasised the need to balance its inflation target with economic stability. While softer labour market conditions and muted business confidence strengthen the case for rate relief, persistent inflation pressures could prompt policymakers to proceed cautiously. In the broader market context, the US dollar has softened slightly as investors reassess the Federal Reserve’s policy trajectory, following signs of cooling inflation and moderating growth in the United States. This has provided modest short-term support for the NZDUSD pair, though the overall outlook remains clouded by domestic economic challenges. Looking ahead, traders will closely monitor upcoming economic data and central bank commentary for clues on the RBNZ’s next move. Any confirmation of an impending rate cut could weigh further on the NZD, while evidence of stabilising inflation or improved business sentiment might help limit downside risks.Key Movers
The US dollar (USD) traded on a cautious note on Wednesday as investors grew increasingly confident that the Federal Reserve (Fed) could begin lowering interest rates as early as its December policy meeting. At the time of writing, the US Dollar Index (DXY) — which measures the Greenback’s performance against a basket of six major currencies — hovered near its weekly low of around 99.30, a level last touched on Tuesday. Market sentiment has shifted notably in recent days, as softer economic data and easing inflation pressures have prompted traders to reassess the Fed’s policy outlook. According to the CME FedWatch Tool, market participants now assign a 68% probability that the central bank will deliver a 25-basis-point (bps) rate cut in December, lowering the federal funds rate target range to 3.50%–3.75%. This is up from a 62.4% chance seen at the start of the week, reflecting growing conviction that the Fed’s tightening cycle has reached its end. Recent economic releases have supported the case for monetary easing. Consumer price inflation has continued to moderate, while retail sales and manufacturing output have shown signs of slowing. Additionally, labour market data indicate that hiring momentum is cooling, with job openings and wage growth both easing. Together, these factors suggest that inflationary pressures are subsiding without triggering a sharp downturn — a scenario that could allow the Fed to gradually unwind its restrictive stance in the coming months. However, policymakers remain cautious. Several Fed officials have reiterated that any decision to cut rates will depend on sustained evidence that inflation is moving convincingly toward the 2% target. The central bank has also emphasised that premature easing could risk reigniting price pressures, especially if consumer demand remains resilient through the holiday season. In the broader market, a weaker US dollar has lent support to major peers such as the euro, the British pound, and the Australian dollar, all of which have gained modestly in recent sessions. Lower US Treasury yields have further weighed on the Greenback’s appeal, with investors seeking higher returns in risk-sensitive assets. Looking ahead, traders will focus on upcoming US inflation and retail sales figures for additional clues on the Fed’s next move. A continuation of the soft economic trend would likely reinforce expectations of a December rate cut, keeping the USD on the defensive in the near term.Expected Ranges
- NZD/USD: 0.5550 - 0.5750 ▲
- NZD/EUR: 0.4800 - 0.5000 ▲
- GBP/NZD: 2.3100 - 2.3300 ▼
- NZD/AUD: 1.1450 - 1.1650 ▼
- NZD/CAD: 0.7800 - 0.8000 ▲