The NZD/USD exchange rate might encounter challenges as easing inflation enhances the probability of an interest rate cut by the Reserve Bank of New Zealand (RBNZ) in November. In the September quarter, New Zealand’s Consumer Price Index recorded a 2.2% increase year-over-year, bringing inflation within the RBNZ’s target range of 1% to 3%. In contrast, the US Dollar has been gaining strength as robust labor and inflation data have shifted market expectations regarding the Federal Reserve’s approach to interest rates.
On Thursday during the Asian trading hours, the NZD/USD pair managed to halt its three-day decline, trading at approximately 0.6070. However, the potential for further gains is limited, particularly in light of recent statistics indicating that New Zealand’s inflation rate has dropped to its lowest level in over three years. This decline has heightened the likelihood that the RBNZ will opt to lower interest rates at its upcoming monetary policy meeting.
The latest Consumer Price Index data from New Zealand shows that inflation has decreased from a prior annual increase of 3.3% to the current 2.2%. This marks a significant adjustment, as it is the first time since March 2021 that inflation figures fall within the RBNZ’s target bracket. While prices continue to rise, they are doing so at a reduced pace compared to earlier periods.
Market sentiment is likely to be cautious as traders await critical economic data from China, New Zealand’s primary trading partner, set for release on Friday. Key metrics such as GDP and Retail Sales are anticipated, particularly in light of recent disappointing consumer price index figures from China and the market’s lukewarm reception to the government’s fiscal stimulus measures.
In the United States, strong labor and inflation figures have provided a boost to the US Dollar. Market forecasts suggest a 92.1% chance of a 25-basis-point interest rate cut by the Federal Reserve in November, with no indications of a larger cut. Traders are also looking forward to US Retail Sales data, with expectations for a monthly increase in consumer spending of 0.3% for September, compared to a previous increase of 0.1%.
