New Zealand Dollar Drops to 14-Month Low on Aggressive Fed Bets

By BLOOMBERG

The New Zealand dollar dropped to the weakest level in 14 months amid growing bets the Federal Reserve’s policy tightening may outpace rate hikes from the nation’s central bank this year.

The kiwi fell as much as 0.3% to 67 U.S. cents Monday, the weakest since Nov. 2020. That’s after the greenback got a boost from speculation the Fed will respond to rampant inflation by making its first half-percentage point increase since 2000 in March. 

The Reserve Bank of New Zealand had raised its interest rate in November, and said at the time that it would take a cautious approach to further tightening, citing the large amount of household debt as one of the reasons.

Traders are watching New Zealand’s fourth-quarter inflation data due Jan. 27 for clues on the central bank’s stance. Inflation last quarter is forecast to jump to 5.8% year-over-year, highest since 1990. The RBNZ expects to lift the official cash rate to 2.5% by the second half of 2023 from its current level of 0.75%.