After five consecutive quarterly drops, the New Zealand dollar is flirting with a level not seen since the early pandemic. ACCM Prime and Gaitame.com Research Institute Ltd. say a weaker growth outlook is eroding the case for rapid rate increases, putting a test of the March 2020 trough at 54.7 US cents on the table.
Based in Melbourne, Glenn Yin serves as ACCM's director of research and said, "The kiwi is in a super tight spot." He said a soft CPI print could remove a key pillar of support because the RBNZ might pause, which would put the currency's perceived rate advantage at risk and potentially push it below its 2020 low.
At present, swap markets are pricing in over one percentage point of extra tightening in the next 12 months, well in excess of the Reserve Bank of New Zealand's projection of 40 basis points. This week's inflation report is set to either validate or upend that aggressive path.
Based on the RBNZ's model nowcasts, GDP is projected to ease to 0.12% in the fourth quarter, down from 0.40% in the prior quarter. With that slowdown in view, traders are watching for signs price pressures have eased. A Bloomberg survey puts annual CPI at 3.8% for the third quarter, down from 4.1% and just below the RBNZ's 3.9% estimate.
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The kiwi finished Friday at 56.52 US cents, holding above the 55-cent psychological line. If that threshold gives way, the next support is at 54.86 cents, which marks the April 2025 low.
Speaking last week, RBNZ Chief Economist Paul Conway described the Oct. 28 rate decision as "wide open,". In Tokyo, Takuya Kanda, a senior foreign-exchange analyst at Gaitame.com, said the 55 level is providing support, while warning the currency risks falling below its March 2020 trough. He called Thursday's CPI release "particularly important" and said it could indicate whether markets have already priced in too much RBNZ tightening.
With New Zealand voting on Nov. 7, the close contest between the ruling National Party and the opposition Labour Party heightens the risk of a hung parliament, potentially prolonging policy uncertainty. Alongside cooling growth and a key CPI print, traders remain wary of additional downside in the kiwi.
All eyes are on the CPI release because it will confirm or challenge the market's extra-hawkish rate path. With growth slowing and the Oct. 28 decision described as "wide open," the balance of risks around the kiwi has tilted lower into the election calendar.
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