The NZD/USD pair struggles near 0.5600 as a 91% probability of a December Fed rate hike and cooling New Zealand inflation expectations cap upside potential.
October CPI rose 0.4% m/m versus a 0.3% forecast, core CPI came in at 0.3% above the 0.2% estimate, and markets now price roughly a 91% probability of a Fed rate hike in December. Goolsbee's hawkish tone (Speechtracker 8/10, Fed Sentiment Index up 1.69 to 145.61) reinforces higher-for-longer expectations, supporting the Dollar.
The pair trades around 0.5600 after losing over 0.5% the previous day, but the article flags two headwinds: falling RBNZ rate-hike expectations as lower oil prices curb inflation, and a hawkish Fed repricing after October CPI beat estimates (0.4% m/m, core 0.3%). Markets price a ~91% chance of a US rate hike in December, which should cap any NZD upside.
Declining oil prices are curbing New Zealand inflationary pressures, which reduces market expectations for future RBNZ rate hikes - a headwind for the Kiwi since lower relative rates make it less attractive, especially against a Dollar backed by rising Fed hike odds.
The New Zealand Dollar faces persistent headwinds as US inflation data fuels a hawkish shift in Federal Reserve policy expectations. Markets now price a 91% probability of a December rate hike, while falling oil prices dampen RBNZ rate-hike prospects. Despite a slight recovery during Asian hours, the Kiwi remains pressured by the widening rate differential and ongoing domestic coalition negotiations.
Markets are pricing in approximately a 91% probability of a rate increase at the December meeting following the hotter-than-expected October inflation data.
Softer RBNZ rate-hike expectations and a hawkish Fed shift after the hotter-than-expected October US CPI reduce the appeal of the New Zealand Dollar against the US Dollar, capping the pair's upside around 0.5600.
The outcome of New Zealand's coalition negotiations and who becomes Finance Minister, plus any shift in Fed December rate-hike odds, are the key swing factors highlighted in the article.
Lower oil prices reduce inflationary pressures in New Zealand, which lowers expectations of future RBNZ rate hikes, and lower expected rates reduce the currency's appeal.