- The New Zealand Dollar trims gains and approaches 0.5800 after bouncing at 5-month lows of 0.5755
- The US Dollar depreciates across the board with markets bracing for a US government shutdown.
- Hopes of further RBNZ easing in the near-term are keeping Kiwi’s rallies limited.
The New Zealand Dollar trimmed some losses on Monday and reached prices right below 0.5800, after bouncing at 0.5755 on Friday. The US Dollar’s weakness due to concerns about a potential US government shutdown has provided some support to the Kiwi.
Investors are selling US Dollars, on growing concerns that the US administration will be unable to keep the government going beyond Tuesday, which is the last day of the 2025 fiscal year.
US Dollar falters with US government’s shutdown looming
Trump has scheduled a meeting with congressional leaders later on Monday to avert the federal government’s closure, but the positions of the two major parties remain far apart. The US President deemed the Democrats’ demands as “totally unreasonable” last week, and the odds for a last-minute deal seem remote.
Also on Monday, Cleveland Fed President Beth Hammack affirmed on a CNBC interview that the Fed should maintain a restrictive monetary policy amid the upside risks to inflation while warning about the negative impact on the GDP from a potential shutdown.
The New Zealand Dollar, on the other hand, maintains its broader bearish trend in play, with investors anticipating further RBNZ monetary easing. The central bank announced that Dr Anna Brennan, Deputy Governor of the Swedish Central Bank, will be the next Governor of the Reserve Bank of New Zealand from December 1 onwards, but a rate cut before that date is not ruled out.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.