Kiwi returns below 0.5600 as New Zealand heads to Saturday’s vote

NZD/USD is back below 0.5600, reversing Thursday's advance above 0.5650.
The Dollar has recovered from its midterm low as the probability of a December RBNZ rate hike stands below 50%.
Neither of New Zealand's main parties is heading for a majority ahead of Saturday's vote.

The Kiwi has surrendered the gains made when US midterm results pushed the Dollar to a one-month low, leaving it back at its earlier level ahead of New Zealand's election on Saturday. After climbing above 0.5650 on Thursday, NZD/USD has slipped to a session low just below 0.5600. The retreat erases Wednesday's entire advance from the pair's lowest level since 14 October.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Expectations of a December rate increase have eased to below 50% following the third-quarter employment data, compared with nearly 75% at the beginning of the week. On 28 October, the Reserve Bank of New Zealand (RBNZ) voted four to three to leave rates at 2.75%, signalling that tighter policy was likely but giving no timing. Meanwhile, the final Freshwater poll put Labour at 30.7% and Prime Minister Luxon's National at 26.4%. With 5.1%, the Opportunity party held the balance.

Part of the Dollar's Wednesday decline to a one-month low after the Democrats took Congress was reversed following Thursday's US data. Jobless claims came in at 189K, below the 196K forecast, while third-quarter productivity increased 3.6%, exceeding expectations of 2.5%. Markets price a Fed rate hike on 9 December at close to 70%. Whether or not that increase materialises, the Fed's 3.75%-4.00% rate remains above the RBNZ's 2.75%.

Which events are next on the calendar?

The immediate event is Saturday's election. On Monday at 01:30 GMT, China releases its October Consumer Price Index (CPI), following an annual reading of 0.9%. Its trade data follows on Tuesday at 03:00 GMT, after export growth of 36.3%. New Zealand's October manufacturing Purchasing Managers Index (PMI) is scheduled for Thursday, 12 November, at 21:30 GMT, following a reading of 56.5. The RBNZ's next policy decision will accompany December's Monetary Policy Statement.

October's Nonfarm Payrolls (NFP), due on Friday at 13:30 GMT, are expected at 65K following 29K. October's CPI follows on Tuesday, 10 November, with a forecast of 0.3% compared with the previous 0.6%. Both releases will inform the Fed's 8-9 December meeting, with the US rate the higher of the pair's two policy rates.

What do the charts indicate?

About four-fifths of the advance between the 14 October low near 0.5550 and the 22 October high near 0.5700 has now been retraced. Since the RBNZ left rates unchanged, NZD/USD has traded below its 50-day Exponential Moving Average (EMA), which sits just below 0.5700. The 200-day EMA is just below 0.5800, while daily momentum has been easing from overbought territory since late October.

Daily chart: NZD/USD

New Zealand Dollar: Frequently Asked Questions

Which factors shape movements in the New Zealand Dollar?

Investors widely trade the New Zealand Dollar (NZD), commonly called the Kiwi. Although New Zealand's economic health and central bank policy broadly determine its value, several distinctive influences also affect the currency. China is New Zealand's largest trading partner, making Chinese economic performance an important driver of the Kiwi. Weak news from China is likely to reduce New Zealand's exports to that market, weighing on both its economy and currency. Dairy prices are another key influence, as dairy is New Zealand's main export industry. Higher dairy prices lift export earnings, supporting the economy and, in turn, the NZD.

Why do RBNZ decisions matter for the New Zealand Dollar?

Keeping medium-term inflation within a 1% to 3% range, preferably near the 2% midpoint, is the Reserve Bank of New Zealand's (RBNZ) objective. The bank sets interest rates at a level suited to that goal. If inflation becomes too high, it raises rates to slow the economy. Higher rates also lift bond yields, making investment in New Zealand more attractive and supporting the NZD. Rate cuts, by contrast, generally weigh on the currency. NZD/USD can also be strongly influenced by the rate differential: the gap between actual or expected New Zealand interest rates and those set by the US Federal Reserve.

Why can economic releases move the New Zealand Dollar?

By helping investors judge the economy's condition, New Zealand's macroeconomic releases can influence the valuation of the New Zealand Dollar (NZD). Strong growth, low unemployment and robust confidence provide a supportive backdrop for the currency. Rapid economic growth draws foreign investment; when accompanied by elevated inflation, it may also prompt the Reserve Bank of New Zealand to raise interest rates. Weak economic figures, on the other hand, are likely to lead to NZD depreciation.

What does wider risk appetite mean for the New Zealand Dollar?

During risk-on phases, the New Zealand Dollar (NZD) generally gains as investors see limited risks across markets and remain upbeat about growth. Such conditions typically improve the outlook for commodities and so-called ‘commodity currencies’, including the Kiwi. In periods of market turmoil or economic uncertainty, the reverse tends to occur: investors sell higher-risk holdings in favour of more stable safe havens, usually weakening the NZD.