Kiwi Caught Between Two Central Banks
The New Zealand dollar-US dollar (NZD/USD) pair is facing a potentially volatile period due to rising expectations of further rate increases from both the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve (Fed).
In September, the RBNZ raised interest rates for the second time this year, but US inflation remains high. Consumer prices in New Zealand rose 4.1% year-on-year in the second quarter, above the RBNZ's target range of 1-3%, largely due to higher fuel prices linked to the conflict in the Middle East.
The RBNZ responded by raising the Official Cash Rate by 0.25 percentage points to 2.75% and said another increase may be needed before the end of the year, but emphasized that inflation excluding vehicle fuels eased to 2.9%, while longer-term inflation expectations remain close to 2%.
The Fed's decision on interest rates this week is also causing uncertainty for the US dollar. Markets are heavily expecting a rate hike, and Van Ha Trinh, Financial Markets Strategist at Exness, notes that 'the kiwi is caught between two central banks dealing with a similar problem.'