NZD/USD Dips to Lowest Since Late June as Hike Bets Build
The New Zealand Dollar (NZD) has been trading near its lows for five consecutive weeks, dipping to its lowest point since late June. On Monday, the NZD/USD pair reached a low of around 0.5650, matching Thursday's and Friday's lows. Despite closing above this level with a small gain, markets are now pricing an 80% chance of a Reserve Bank of New Zealand (RBNZ) rate hike to 3% from 2.75% on October 28.
This rise in hike bets has been building since RBNZ Governor Adrian Bullock's statement on September 22, where he mentioned that higher crude oil prices could push near-term inflation above the bank's assumed level. Additionally, the second-quarter GDP beat forecasts on September 17, and revisions to the first quarter further pushed odds above even.
The RBNZ's own rate track, published on September 2, pointed to a pause in October and a hike in December. However, with the third-quarter Consumer Price Index (CPI) landing on October 21, one week before the decision, markets will closely watch this data point. The general election follows on November 7, giving voters ten days' notice of the RBNZ's decision.
While a hike alone might not lift the Kiwi if the US Federal Reserve moves on the same day, swaps put the Official Cash Rate (OCR) near 4% at the end of the cycle. The Fed is expected to announce a quarter-point increase from 3.75%-4.00%, leaving the gap between the two central banks unchanged.