New Zealand Dollar Languishes at Over 2-Year Low

The New Zealand dollar held its recent decline to around $0.562 on Thursday, trading at its lowest level since October 2022 as investors reacted to data showing the domestic economy had slipped back into recession.

New Zealand's GDP contracted by 1% in the third quarter, following a revised 1.1% fall in the previous quarter.

On an annual basis, the economy shrank by 1.5%, compared to a 0.5% contraction in the prior period.

The figures came in much worse than analysts expected, including the Reserve Bank of New Zealand, reinforcing expectations for aggressive monetary policy easing.

On Wednesday, the kiwi plunged 2.3% as the US dollar strengthened after the Federal Reserve delivered a rate cut as anticipated but indicated a slower pace of rate reductions in the coming year.

The New Zealand dollar fell below 0.569 on Wednesday, hitting a two-year low, as the US dollar strengthened following the Federal Reserve's hawkish outlook.

While the Fed delivered the expected 25bps rate cut, its projection for just a 50bps reduction in 2025, instead of the previously anticipated full percentage point, raised concerns about a slower pace of easing.

Additionally, weak Chinese economic data, New Zealand's key trading partner, further pressured the Kiwi dollar, with disappointing retail sales fueling fears of a deeper slowdown in China.

Domestically, expectations of a 0.4% contraction in third-quarter GDP added to the bearish sentiment surrounding the NZD.

The New Zealand dollar dropped to around $0.574 on Wednesday, hovering at its lowest level in over two years as investors remained cautious ahead of the US Federal Reserve’s policy decision.

While the market widely expects a rate cut, investors are fretting about the pace of easing next year.

Additionally, renewed concerns over China’s economy, spurred by weak economic data, weighed on the Kiwi dollar due to New Zealand's reliance on China as a key export market.

Domestically, attention is focused on the third-quarter GDP data due on Thursday, which is likely to show the New Zealand's economy contracted again.

Meanwhile, a survey from Westpac showed that consumer confidence rose in the fourth quarter (97.5 vs 90.8 in Q3), the most upbeat in three years, although it remained below long-run averages.

The New Zealand dollar fell to around $0.578 on Tuesday, reversing gains from the previous session as investors braced for the Federal Reserve's monetary policy announcement and key economic data this week.

The US central bank is widely expected to lower rates by 25 bps on Wednesday, but traders are primarily focused on the updated economic projections for next year’s outlook.

Domestically, markets are awaiting a series of economic releases, with the focal point being Q3 GDP, which is projected to contract by 0.4% quarter-on-quarter, potentially signaling a return to recession.

Subdued data would add to evidence supporting a more aggressive policy stance from the Reserve Bank of New Zealand.

Meanwhile, New Zealand's Treasury forecasted a larger budget deficit for this year, citing rising unemployment and slower economic growth, delaying a return to surplus for at least five years.

The New Zealand dollar rose to around $0.577 on Monday, gaining some ground after sliding for four consecutive sessions as investors reacted to the latest data from its largest trading partner, China.

Recent reports showed that Chinese industrial output was better than expected.

However, optimism was limited as retail sales missed forecasts significantly and house prices continued to decline.

Domestically, the Kiwi dollar remained under pressure due to expectations of a further aggressive easing approach from the Reserve Bank of New Zealand early next year.

In economic news, annual food inflation in New Zealand increased to a nine-month high of 1.3% in November, edging up from 1.2% in October.

Markets now await the release of the half-yearly fiscal update on Tuesday, followed by the Q3 GDP data on Thursday, which is expected to show another contraction.

The New Zealand dollar fell to around $0.575 on Friday, trading at its weakest level in over two years, pressured by a strong US dollar.

The greenback strengthened after US producer inflation rose more than expected, pushing T-note yields higher.

At the same time, recent promises of additional stimulus measures from China failed to lift the Kiwi dollar.

Domestically, expectations of a substantial rate cut from the Reserve Bank of New Zealand further weighed on the local currency.

Markets currently see a 66% chance of a 50bps cut at the central bank’s February meeting, with rates projected to drop to around 3.10% by the end of 2025.

On the economic data front, New Zealand’s manufacturing sector contracted further in November (45.5 vs 45.8 in October).