NZD/USD Downward Trend Continues, Eyes on US Economic Indicators

The New Zealand dollar, commonly referred to as the Kiwi, has seen a continuous decline, intensifying its losses to approach a value of 0.5870 against the US dollar during the Asian market hours on Tuesday. This downturn, which initiated on the 6th of November, is largely being linked to internal economic indicators, especially the Food Price Index (FPI) in New Zealand, which reported a 0.9% month-on-month decrease in October.

Food costs are a significant component in New Zealand’s calculation of inflation, accounting for about 19% of the nation’s Consumer Price Index (CPI). The FPI is particularly critical as it reflects the change in price for a group of food items that are typically purchased by New Zealand families, thereby serving as a pulse check on inflationary pressures within the domestic economy.

The influential financial firm Goldman Sachs has projected that inflation rates in New Zealand, as measured by the CPI, will fall below 3% by the fourth quarter of 2024. This projection also carries the implication that the rate hike cycle, administered by the Reserve Bank of New Zealand (RBNZ), may have reached its conclusion. Consequently, Goldman Sachs expects that the RBNZ may embark on a rate-cutting journey starting from the same quarter in 2024.

In parallel, the US Dollar Index (DXY), which is a measure of the strength of the US dollar against a basket of currencies, is experiencing its own set of challenges. Despite efforts to stem further losses, it has been trading around the mark of 105.70. The US dollar is under pressure, partly due to the unpredictable nature of US bond yields, with the 10-year Treasury note yield hovering around 4.63% at the time of reporting.

Market analysts are keeping a close eye on the upcoming release of the US Consumer Price Index (CPI) data for October. There is an anticipation of a rise in CPI, albeit at a diminished pace compared to previous months. The core annual inflation rate is anticipated to hold steady. Should the forthcoming data align with these market forecasts, it would likely reinforce the belief that the US Federal Reserve’s cycle of interest rate hikes has come to a halt. This stabilization in monetary policy, if confirmed, could potentially exert additional downward pressure on the US dollar’s value.

The intricate interplay between these economic indicators and central bank policies from both New Zealand and the United States holds significant implications for currency valuations, trade balances, and international investment flows, influencing global financial markets.