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The New Zealand dollar fell to around $0.619 after gaining 0.7% in the previous session, pressured by concerns over economic weakness in China, which is New Zealand’s largest trading partner. The slowdown in China has raised fears of decreased demand for New Zealand’s exports, contributing to the Kiwi’s decline.
In New Zealand, attention is focused on the upcoming GDP data for the second quarter, set to be released on Thursday. Markets are anticipating a 0.4% contraction in quarter-on-quarter growth, raising alarms about the overall health of the domestic economy. These concerns have led to increased expectations for further monetary policy easing.
The market has already fully priced in a 25-basis-point rate cut by the Reserve Bank of New Zealand in October. Additionally, there’s a 25% probability of a more aggressive 50-basis-point reduction, as policymakers aim to prevent a deeper economic slowdown. This potential for significant monetary easing is adding downward pressure on the Kiwi.
Externally, the New Zealand dollar avoided steeper losses due to a weakening US dollar. The greenback’s retreat came ahead of the Federal Reserve’s policy meeting, where markets are expecting an outsized rate cut. The expectation of lower US rates helped cushion the Kiwi from further declines.
With both domestic and global economic factors at play, the New Zealand dollar remains under pressure, as traders await key data releases and central bank decisions later this week.
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