NZD Dives to Two-Month Lows Amid Fed Hike Bets and Weak Chinese Data

The New Zealand Dollar (NZD) fell to two-month lows against the US Dollar (USD), reaching 0.5765 on Tuesday, as investors bet heavily on a quarter-point interest rate hike by the Federal Reserve (Fed) this week and possibly another in December.

This decline has been ongoing for two weeks, driven by a mix of risk aversion amidst the Middle East war and global bond market turmoil, along with weak data from China. The Reserve Bank of New Zealand's dovish interest rate projections are also seen as weighing on the NZD, experts say.

Brown Brothers Harriman analysts note that the RBNZ projects its policy rate to peak at 3.25% in 2028, which is below the top end of its nominal neutral range estimate between 2.3% and 4.1%. This gap leaves room for a dovish repricing, which is seen as a drag on the NZD.

The FOMC's decision this week will likely be influenced by strong Nonfarm Payrolls data released earlier in September and hot inflationary figures seen on Friday. The CME's FedWatch Tool shows that futures markets now price a 92% chance of a monetary tightening move, up from 60% last week.