The Kiwi retreated to just under 0.5600 as US inflation data and hawkish comments from Fed officials pushed the US Dollar higher, overshadowing optimism surrounding the projected National-led government election victory.
Hot October US CPI lifted Fed hike pricing to 4.50%-4.75% by June, wiping out nearly half of Monday's election-driven NZD gain and pushing the pair to just under 0.5600. A widening 1.75-2.00 point rate gap in favour of the US weighs on NZD unless the RBNZ hikes too, with both banks deciding December 9.
October US consumer prices rose more than forecast, and Kansas City Fed President Schmid sees little restriction from current rates outside housing. Traders now price the Fed at 4.50%-4.75% by June, three quarter-point hikes, with a December hike treated as a given, supporting the Dollar against higher-yielding peers.
The New Zealand Dollar has surrendered nearly half of its election-driven gains as hotter-than-expected US consumer prices bolster the case for further Federal Reserve tightening. Markets are now pricing in a Fed rate path of 4.50%-4.75% by June, creating a widening interest rate differential against the Reserve Bank of New Zealand's 2.75% benchmark.
The election result initially helped NZD because markets expect a National-led government to keep the RBNZ focused on inflation alone, but hotter October US consumer prices pushed up expected Fed rates, reversing nearly half of that gain.
New Zealand October card spending on Wednesday at 21:45 GMT, the Business NZ PMI Thursday at 21:30 GMT after 56.5, and core US producer prices Friday, all ahead of the RBNZ and Fed decisions on December 9.
October US consumer prices rose more than forecast and a Fed official said policy is not restrictive outside housing, leading traders to price three more quarter-point hikes to 4.50%-4.75% by June.