The New Zealand dollar fell on Wednesday. Photo: 123rf
The New Zealand dollar fell on Wednesday in trading against the United States dollar, in response to weaker than expected inflation data.
The currency has been under pressure for weeks with interest rates falling and the economy slowing domestically, and global forces such as a stronger US economy, the US Election and tensions in the Middle East are not helping.
On Wednesday, Stats NZ data showed the annual inflation rate slowed to 2.2 percent in the third quarter, compared to 3.3 percent in June. As a result, the Kiwi dollar dropped to 60.4 US cents, from a peak of 60.9 that same day day.
Westpac market strategist Imre Speizer said it was not a large fall, but it showed the market was pricing in another big rate cut by the Reserve Bank.
"The CPI data itself was slightly softer than expected and that has encouraged the market to believe we might get quite a big rate cut when they meet in November. Indeed, a 50-point rate cut now is taken as a given, and there are some on the markets who are putting some chance of a jumbo 75-point cut.
"So that's pushed New Zealand interest rates down a bit further, and when New Zealand interest rates fall relative to other countries, the exchange rate will fall. That's why we've got a weaker currency on the day."
Speizer said poor economic data and falling rates means there was not much market support for the dollar, and it could drop to around 59 cents in the coming weeks.
BNZ senior market strategist Jason Wong said the dollar tended to be driven around more by global forces than domestic forces.
"The Kiwi dollar has had a bit of a weak run through the month of October and that largely reflects things like strong growth in the US, a bit of a paring back of how much easing the Federal Reserve will be doing because their inflation has surprised a little bit on the upside.
"We've also got stuff going on in China. There's a lot of disappointment recently about the scale of the possible policy stimulus ahead."
He said the odds Donald Trump will win the US Election in November is also putting negative pressure on the dollar.
"Just recently we've had more polls showing Donald Trump's support base increasing, and the odds of him winning the next election and resulting in a Republican clean sweep that seems to be rising by the day. That seems to be US-dollar positive and negative Kiwi dollar as well.
"He's looking to increase tariffs against China. Our economy is very closely linked to what happens in China."
Wednesday's rate of 60.4 is the lowest the dollar has been since the middle of August, but at the beginning of the same month the Kiwi traded below 59 cents.
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