New Zealand Dollar Reacts to Domestic Inflation and US Dollar Movements
The New Zealand dollar eased after domestic inflation undershot expectations in the third quarter, snapping NZD/USD’s five-day rise, though losses were limited by a softer US dollar. The pair traded near 0.5686, down from a one-month high of 0.5711, as US Treasury yields fell across the curve; the 10-year yield slipped below 5.00% after hitting 5.36% earlier this month and was down about 15 bps on the day. The Dollar Index hovered around 101.60 after touching 101.45, while an AI-linked equity sell-off and Middle East-driven energy risks kept attention on the Federal Reserve’s next steps.
Market Outlook and Central Bank Expectations
Markets are focused on next week’s Fed meeting, where rates are widely expected to be held, even as December hike pricing moderated; the CME FedWatch Tool put the probability at 67.6%, down from about 89% earlier in the day. In New Zealand, CPI rose 0.7% QoQ versus 0.8% forecast and 1.5% previously, while annual inflation slowed to 3.7% from 4.1%, below the 3.8% consensus. Underlying gauges showed 2.8% y/y for a second straight quarter and CPI ex. petrol at 3.2% y/y for a fourth, with swaps implying 85% odds of a 25 bps RBNZ move to 3.00% on 28 October and more than 100 bps of tightening over 12 months to 3.75%, against a 2.20%–4.10% neutral range.
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