Kiwi dollar softens despite strong GDP
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Daily Currency Update
The New Zealand dollar edged slightly lower against the US dollar this morning, as markets weighed stronger-than-expected domestic growth data against the Reserve Bank of New Zealand’s cautious policy outlook. While New Zealand’s economy showed a solid rebound in the third quarter, investors remain mindful that monetary policy is likely to stay on hold for an extended period.New Zealand’s real gross domestic product (GDP) rose by 1.1% quarter-on-quarter in Q3, comfortably beating market expectations of a 0.9% increase and well above the RBNZ’s own projection of 0.4%. The result marked a notable turnaround from the 1.0% contraction recorded in the previous quarter, highlighting a clear improvement in economic momentum.
The strength of the rebound was broad-based, with output rising in 14 of the 16 measured industries. Gains were seen across a wide range of sectors, pointing to a recovery that is not solely reliant on one area of the economy. This breadth has been welcomed by analysts, who view it as a sign of underlying resilience despite ongoing global and domestic headwinds.
However, despite the upbeat growth figures, the New Zealand dollar struggled to draw sustained support. The RBNZ has remained firm in its guidance that the official cash rate is likely to stay at 2.25% through 2026, reflecting the central bank’s focus on maintaining stability as inflation pressures continue to ease. This forward guidance has tempered expectations for near-term policy tightening, limiting the currency’s upside even in the face of positive economic surprises.
Market participants appear to be balancing the encouraging growth data with the reality that interest rate differentials remain a key driver of currency performance. With the RBNZ signalling patience, investors are cautious about pricing in any shift toward higher rates, especially as global central banks move at different speeds.
Looking ahead, the New Zealand dollar’s direction is likely to depend on whether upcoming data can reinforce the picture of sustained economic recovery. Continued strength in activity could eventually prompt markets to reassess the RBNZ’s outlook, but for now, policymakers appear comfortable maintaining a steady hand.
In the near term, NZD/USD may continue to trade in a measured range, as traders digest the implications of strong growth alongside a firmly accommodative policy stance. The combination of solid fundamentals and cautious central bank guidance leaves the currency at a crossroads, awaiting clearer signals on the path forward.
Key Movers
The US dollar steadied near the highs reached in the previous session, as investors adopted a cautious stance ahead of today’s closely watched US consumer price inflation data for November. With inflation trends playing a central role in shaping expectations for Federal Reserve policy, the release is expected to set the tone for markets in the near term.Headline and core CPI are both forecast to remain around 3% year-on-year in November, reinforcing the view that progress toward the Fed’s 2% inflation target has slowed. While inflation has come down significantly from its peak, recent data suggest it has become somewhat sticky, raising questions about how quickly price pressures will ease from here. As a result, markets are carefully assessing whether the current environment supports a shift toward lower interest rates.
Despite inflation remaining above target, there are few clear signs that price pressures are re-accelerating. This distinction is important for policymakers, as it suggests that while inflation progress may have stalled, upside risks remain contained. In this context, the Federal Reserve retains some flexibility to ease policy later on, should economic conditions warrant it.
Supporting this more balanced outlook, recent survey data point to a gradual moderation in inflation pressures. The Institute for Supply Management’s prices paid indexes have continued to trend lower, indicating that businesses are facing less upward pressure on input costs. These readings suggest that inflationary forces within the supply chain are easing, even if consumer-level prices are proving slower to adjust.
For currency markets, the US dollar’s resilience reflects a combination of caution and positioning ahead of the CPI release. A firmer-than-expected inflation print could reinforce expectations that interest rates will remain higher for longer, providing near-term support for the greenback. Conversely, a softer outcome may revive speculation around earlier rate cuts, potentially weighing on the dollar.
Looking ahead, today’s CPI data will be a key input into the Fed’s policy deliberations as it seeks to balance the risks of easing too soon against the danger of keeping policy overly restrictive. With inflation still above target but no longer accelerating, the central bank faces a delicate task in navigating the next phase of the economic cycle.
For now, markets remain in wait-and-see mode, with the US dollar holding steady as investors await clearer signals on the path inflation and monetary policy will take in the months ahead.
Note: This is our final daily market commentary for 2025. Thank you for reading, enjoy the holiday period and have a prosperous start to the new year.
Expected Ranges
- NZD/USD: 0.5700 - 0.5900 ▼
- NZD/EUR: 0.4800 - 0.5000 ▼
- GBP/NZD: 2.3100 - 2.3300 ▲
- NZD/AUD: 1.1350 - 1.1550 ▼
- NZD/CAD: 0.7850 - 0.8050 ▲