New Zealand dollar stuck near multi-month lows as rate-cut expectations grow
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Daily Currency Update
The New Zealand dollar continues to hover near seven-month lows against the US dollar, unable to sustain any meaningful rebound above the 0.5600 level. Each attempt to move higher has been met with renewed selling pressure, reflecting a market that is increasingly convinced the Reserve Bank of New Zealand (RBNZ) will cut interest rates next week. At the same time, diminishing expectations for Federal Reserve easing in December have given the US dollar an additional boost, widening the monetary policy gap between the two economies and keeping the NZD on the back foot. This divergence in policy outlooks has become one of the dominant forces driving NZD/USD dynamics. Investors now see the Fed staying cautious for longer, supported by recent US data that point to steady economic activity and lingering inflation pressures. As a result, the US dollar has remained firm across the board. By contrast, New Zealand’s economic picture has been softening, strengthening the case for the RBNZ to provide more support through lower interest rates. Recent economic data from New Zealand underline the country’s weak macroeconomic momentum. Producer price figures released this week showed a sharper-than-expected moderation in factory-gate inflation. While easing producer prices can relieve cost pressures for businesses, they also signal weakening demand across the economy. This trend adds to concerns that growth is slowing more quickly than previously anticipated. The RBNZ’s latest survey of inflation expectations offered little reason for the central bank to delay action. Expectations for the fourth quarter remained unchanged and well within the bank’s price-stability range. When inflation expectations are steady, policymakers have more flexibility to support the economy without worrying about stoking future price pressures. This stability, combined with softening demand indicators, has reinforced expectations that the RBNZ will deliver another cut next week. Markets have now essentially fully priced in this move. A cut would bring the Official Cash Rate down to 2.25%, marking a dramatic shift from the tight monetary stance seen earlier in the year, when the OCR stood at 5.5% in August 2024. Such a large and rapid adjustment underscores how much economic conditions have deteriorated since mid-year and how urgently policymakers believe further easing is needed. For the NZD, this backdrop makes it difficult to gain traction in the near term. With monetary policy likely to become even more accommodative and global sentiment favouring the stronger US dollar, the path of least resistance for NZD/USD remains tilted to the downside. However, if clearer signs of economic stabilization emerge in early 2025—or if US rate expectations shift again—the kiwi may eventually find room to recover. For now, though, traders remain cautious, keeping the currency pinned near its recent lows as the RBNZ’s next move approaches.Key Movers
The US dollar ended the week on a firmer note, gaining traction after a period in which several supportive factors surprisingly failed to move the needle. Neither the reopening of the US government nor a wave of hawkish remarks from Federal Reserve officials managed to lift the greenback earlier in the month. However, this week’s shift in sentiment—driven largely by weakness in global equity markets—has provided the dollar with the momentum it previously lacked. As stocks retreated, investors sought safety, and the dollar benefited from its traditional role as a haven during risk-off periods. This change in market tone has pushed the euro/dollar pair back toward the 1.1500 area, a level that traders have tested more than once recently. The renewed strength in the dollar reflects not just risk aversion but also positioning, as investors reassess the balance between US economic resilience and prospects for future monetary easing. Even so, the greenback’s latest gains may not be the start of a sustained move higher. Several potential shifts in the macro backdrop could temper the dollar’s appeal as early as next week. One key factor is expectations for the Federal Reserve’s December meeting. While officials have been pushing back against premature easing bets, markets have gradually leaned toward the view that the Fed may deliver a cut before year-end. If incoming data soften or inflation cools further, those expectations could strengthen, reducing support for the dollar. In addition to evolving Fed pricing, changes in broader risk appetite could play an important role. If equity markets stabilize or begin to recover, some of the safe-haven demand underpinning the dollar may fade. Investors have been sensitive to shifts in sentiment, and any sign that economic conditions are improving—either in the US or abroad—may encourage a renewed search for higher-yielding or more growth-sensitive assets, taking some shine off the dollar. Geopolitics also remain an important wild card. Recent weeks have brought occasional pockets of optimism, with diplomatic progress and easing tensions in certain regions helping to calm market nerves. Should more positive developments emerge, they could further diminish the greenback’s safe-haven advantage. A calmer global backdrop typically supports currencies tied to trade, commodities, and risk appetite, potentially giving major peers like the euro, pound, or commodity-linked currencies a window to recover. Taken together, the dollar’s performance this week reflects a market still grappling with competing narratives. For now, the combination of softer equities and cautious investor sentiment is giving the US currency an upper hand. But with Fed expectations in flux, risk appetite fragile, and geopolitical headlines still capable of surprising markets, the greenback may find its current strength tested again in the days ahead.Expected Ranges
- NZD/USD: 0.5500 - 0.5700 ▼
- NZD/EUR: 0.4750 - 0.4950 ▼
- GBP/NZD: 2.3300 - 2.3500 ▲
- NZD/AUD: 1.1350 - 1.1550 ▼
- NZD/CAD: 0.7800 - 0.8000 ▲