New Zealand Dollar Tumbles as US Fed Hike Bets Soar and US Dollar Strengthens
The New Zealand Dollar (NZD) extended its decline on Monday, trading at around 0.5770 and down 0.72% on the day. The main driver of this pressure is a stronger US Dollar (USD), as investors increase their bets on another interest rate hike by the Federal Reserve (Fed) at its upcoming monetary policy meeting on Wednesday.
The latest United States inflation data have reinforced expectations of further monetary tightening, with markets pricing in around an 88% chance of a 25-basis-point interest rate hike by the Fed this week. This supports the US Dollar and puts downward pressure on NZD/USD.
On the New Zealand side, recent economic data show some signs of improvement. The BusinessNZ Performance of Services Index (PSI) rose to 51.2 in August, its highest level since September 2023. However, the recovery remains fragile, with three out of five sub-indices below the 50 threshold.
The Reserve Bank of New Zealand (RBNZ) maintains a cautious stance after raising the Official Cash Rate (OCR) by 25 basis points to 2.75%. The central bank considers that the current interest rate level is accommodative, favoring a gradual withdrawal of monetary stimulus.