Kiwi Dollar Set for Sharp Weekly Rise

The New Zealand dollar rose to around $0.585, reaching a four-month high, as investors now await the fourth-quarter CPI report, due on Friday, for more clues on the Reserve Bank's policy outlook.

Annual inflation is expected to rise to 3%, the upper bound of the RBNZ’s 1-3% target range.

Any upside surprise would strengthen the case for higher interest rates.

Recent economic data have pointed to a firming recovery in New Zealand’s economy, reinforcing the view that the RBNZ may begin tightening policy later this year.

While markets see almost no chance of a move in February, the probability of a hike by July has risen above 50%.

Meanwhile, Prime Minister Luxon on Wednesday announced a national election will be held on November 7.

The kiwi also benefited from improved global risk sentiment after US President Donald Trump withdrew tariff threats against eight European countries and said a “framework of a future deal” over Greenland had been reached.

The New Zealand dollar traded around $0.583, near an over three-week high, supported by a weaker dollar amid renewed US-EU trade tensions.

Investors are watching for Europe’s response, set to be discussed at an emergency meeting on Thursday, after President Trump threatened to impose extra tariffs on several European allies unless a deal over Greenland’s acquisition is reached.

At home, a series of upbeat economic data has signaled that New Zealand’s economic recovery is gaining momentum, reinforcing expectations that the RBNZ could begin tightening policy later this year.

While markets see almost no chance of a move in February, the probability of a hike by July has risen above 50%.

Attention now turns to fourth-quarter CPI report on Friday, with annual rate expected at 3%, the upper bound of the RBNZ’s 1–3% target range.

A stronger reading would boost the case for higher rates.

Meanwhile, Prime Minister Luxon has announced a national election will be held on November 7.

The New Zealand dollar rose to around $0.578, extending gains from the previous session, as a pullback in the US dollar provided support.

The greenback weakened after renewed US tariff threats against several European countries, allowing the kiwi to advance despite lingering global trade uncertainty.

Meanwhile, investors continued to assess the potential timing of rate hikes by the Reserve Bank of New Zealand after recent data pointed to improving economic momentum, with stronger manufacturing activity, firmer labor conditions, and rising business confidence reinforcing expectations that the central bank could begin tightening policy later this year.

Traders are implying more than a 50% probability of a rate increase in September, with a move fully priced in by October.

Markets have now turned to the Q4 inflation report due later this week, with the annual rate expected to remain at its highest level in a year, further strengthening the case for policy tightening.

The New Zealand dollar rose to around $0.575 on Friday and is on track for a weekly advance, supported by upbeat manufacturing data.

The BusinessNZ PMI showed that the country’s manufacturing activity in December grew for the sixth consecutive month and at the fastest pace since July 2021.

The report followed data showing that filled jobs hit an eight-month high in November, while fourth-quarter business confidence surged to its highest level since 2014.

These indicators boosted expectations for a rate hike later this year, with traders implying a 57% probability of an increase in September, with a move fully priced in by October.

However, markets see almost no chance of a change at the Reserve Bank of New Zealand’s February meeting.

For the week, the kiwi has risen 0.5%, poised to end a two-week losing streak.

The New Zealand dollar hovered around $0.574, near its weakest level since early December, as expectations for near-term interest rate hikes remained low.

Recent economic data suggest that activity is gradually recovering, but not strongly enough to justify higher interest rates.

Market pricing indicates almost no chance of a rate hike at the Reserve Bank of New Zealand’s February meeting, with only a small probability of a move until at least September.

While the central bank has signaled that its easing cycle likely ended last year after a cumulative 225 bps of rate cuts, it has also pushed back against expectations for imminent tightening.

Attention now turns to fourth-quarter CPI data due next week, which will provide more clues on the RBNZ’s policy direction.

Externally, the kiwi dollar was also pressured by a rebound in the US dollar after inflation data came in broadly in line with forecasts, reinforcing the case for the Federal Reserve to keep rates steady later this month.

The New Zealand dollar rose to around $0.574, rebounding modestly from a seven-week low, as a softer US dollar offered support while investors sought fresh monetary policy cues.

The greenback came under pressure after Fed Chair Jerome Powell said the Trump administration had used legal threats, including subpoenas, reviving concerns over the Federal Reserve’s independence.

Meanwhile, traders continued to assess the Reserve Bank of New Zealand’s outlook for potential rate hikes, with attention turning to the Q4 CPI data due next week.

The central bank has recently signaled a prolonged pause, indicating that its rate-cutting cycle has likely concluded.

However, Governor Anna Breman also pushed back against expectations of near-term tightening, saying borrowing costs are likely to remain unchanged for an extended period.

Investors are expecting rates to remain on hold through the first half of 2026 and a hike not fully priced in until October.