The New Zealand dollar hovered near 0.598 U.S. dollars on Friday, following a drop of over 1% in the previous session, reaching its lowest point in nearly two weeks. This decline came after economic data revealed a sharper-than-expected contraction, increasing market speculation that the Reserve Bank of New Zealand (RBNZ) may take further steps to ease monetary policy.
Gross domestic product (GDP) shrank by 0.9% in the second quarter through June, significantly worse than the anticipated 0.3% decline and down from a revised 0.9% growth in the prior quarter. The downturn was primarily driven by weakness in construction, manufacturing, and export sectors.
Market participants now anticipate a 25 basis point rate cut by the central bank in October, with around a 25% chance of a more aggressive 50 basis point reduction. Overall expectations for monetary easing have risen to approximately 71 basis points, up from 50 basis points earlier in the week.
Meanwhile, New Zealand’s trade deficit narrowed in August, falling to 1.2 billion New Zealand dollars from 2.3 billion in the same month last year. However, the figure remained above market forecasts of 0.7 billion. Over the week, the currency is on track to lose more than 1%.
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The New Zealand dollar weakened under pressure from an economic recession and expectations of an interest rate cut: CNN Economics
The New Zealand dollar held near 0.598 U.S. dollars in Friday’s trading, after losing more than 1% in the previous session, recording its lowest level in about two weeks.
The decline came as data showed an economic slowdown worse than expected, reinforcing market bets on additional steps by the Reserve Bank of New Zealand to ease monetary policy.
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Gross domestic product contracted by 0.9% in the second quarter until June, compared to expectations of no more than 0.3%, after revised growth of 0.9% in the previous quarter.
Pressure came mainly from weakness in construction, manufacturing, and export sectors.
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Markets bet on interest rate cuts
Investors expect the Reserve Bank to cut rates by 25 basis points in October, with nearly a 25% chance of a larger 50 basis point cut, while overall easing expectations have risen to about 71 basis points compared to 50 basis points at the start of the week.
Trade deficit shrinks but less than expected
In parallel, August data showed New Zealand’s trade deficit narrowed to 1.2 billion New Zealand dollars from 2.3 billion in the same month last year, but remained higher than market expectations of 0.7 billion, and over the week the New Zealand dollar is heading for losses exceeding 1%.
(Reuters)