FX.co ★ New Zealand Dollar Remains Subdued

The New Zealand dollar held near a three-month low around $0.564 and is heading for a monthly drop of more than 4%. The kiwi started September on the back foot after the Reserve Bank of New Zealand signaled a less hawkish interest rate outlook than markets had expected. It then came under further pressure from a stronger US dollar, as rising expectations of additional Federal Reserve rate hikes boosted the greenback.

More recently, however, the sharp rise in oil prices has heightened upside risks to inflation, prompting traders to increase bets on another RBNZ rate hike in October. Governor Anna Breman also cautioned last week that persistently elevated oil prices could push near-term inflation above the central bank’s latest projections.

At the same time, data released today showed New Zealand’s business confidence deteriorated in September, weighed down by surging fuel costs and underscoring the mounting challenges facing the economy.