Can RBNZ inflation expectations check the New Zealand Dollar's slump?

Pressure on NZD/USD persists, with a third consecutive decline taking it close to the 6 November low.
Markets fully price in a December Fed rate increase, while the RBNZ holds its rate at 2.75%.
Tuesday brings the RBNZ's quarterly survey of inflation expectations.

Renewed selling has left the Kiwi near its weakest level in more than 18 months, erasing Monday's one-session post-election rebound over three consecutive declines. At around 0.5550, NZD/USD is trading only marginally above Thursday's low. The pair is now below the starting point of Monday's recovery and remains just above the 6 November trough.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

A rate increase on 9 December is fully reflected in futures prices after San Francisco Fed President Daly said on Thursday that further tightening would be necessary, without specifying its timing or size. By contrast, the Reserve Bank of New Zealand (RBNZ) left its Official Cash Rate (OCR) unchanged at 2.75% on 28 October. With US rates at 3.75%-4.00%, another Fed increase would extend an interest-rate gap already amounting to at least a full percentage point.

National, ACT and New Zealand First have secured 67 of 131 seats in preliminary counting from New Zealand's 7 November election, one seat above a majority. Nearly 400K votes remain uncounted until 27 November. With unemployment at 5.7%, Labour's proposal to restore employment to the RBNZ's mandate points towards lower rates for the Kiwi. Meanwhile, the Business NZ manufacturing index eased from 56.5 to 54.9 in October, reducing pressure on the RBNZ to match the Fed's tightening.

Which upcoming releases could influence rates?

Following September's reading of 50.9, Business NZ's services index is scheduled for 21:30 GMT on Sunday. Next comes the RBNZ's Financial Stability Report at 20:00 GMT on Monday, ahead of its quarterly inflation expectations survey at 02:00 GMT on Tuesday, 17 November. The survey, which previously recorded 2.34%, will inform the RBNZ's next interest-rate decision.

Before those releases, US producer price data are scheduled for 13:30 GMT on Friday, followed by another speech from San Francisco Fed President Daly at 17:00 GMT. At 13:30 GMT on Tuesday, 17 November, October retail sales are expected to show no change following a 0.8% increase. Both the producer price and retail sales figures will feed into the Fed's 9 December decision.

What do the charts indicate for NZD/USD?

Successively lower rebound peaks have marked trading since August: slightly below 0.6000 on 21 August, around 0.5700 in late October and 0.5650 on 10 November. Between 0.5500 and 0.5550, the 6 November trough marks the lowest level on a daily chart beginning in late June. Losses have been recorded in four of the pair's past five sessions.

Daily price chart for NZD/USD

New Zealand Dollar: frequently asked questions

Which major factors influence the New Zealand Dollar?

Widely traded by investors, the New Zealand Dollar (NZD) is also known as the Kiwi. Although New Zealand's economic health and central bank policy largely determine its value, several distinctive influences also affect the currency. One is China's economic performance, given its position as New Zealand's largest trading partner. Negative developments in China are likely to reduce demand for New Zealand's exports, weighing on both its economy and currency. Dairy prices are another important driver, as dairy is New Zealand's principal export industry. Higher prices raise export earnings, supporting the economy and, in turn, the NZD.

Why do RBNZ policy decisions affect the New Zealand Dollar?

Keeping inflation within a 1% to 3% range over the medium term, with particular emphasis on the 2% midpoint, is the aim of the Reserve Bank of New Zealand (RBNZ). The central bank sets interest rates at a level suited to that objective. If inflation becomes too high, it raises rates to moderate economic activity. Higher rates also lift bond yields, making investment in New Zealand more attractive and supporting the NZD. Rate reductions, by contrast, generally weaken the currency. Another significant influence on NZD/USD is the interest-rate differential: the comparison between current or expected New Zealand rates and those set by the US Federal Reserve.

Why are economic releases important for the New Zealand Dollar?

By helping investors assess the economy's condition, New Zealand's macroeconomic releases can influence the valuation of the New Zealand Dollar (NZD). Robust growth, low unemployment and strong confidence support the currency. Faster economic growth draws foreign investment and, when accompanied by elevated inflation, may prompt the Reserve Bank of New Zealand to raise interest rates. Weak economic readings, on the other hand, are likely to result in NZD depreciation.

How do shifts in market risk appetite affect the New Zealand Dollar?

During risk-on phases, the New Zealand Dollar (NZD) generally gains as investors see limited risks across markets and take an optimistic view of growth. Such conditions usually improve the outlook for commodities and so-called ‘commodity currencies’, including the Kiwi. Market turbulence or economic uncertainty typically has the opposite effect: investors sell higher-risk assets in favour of more stable safe havens, tending to weaken the NZD.