New Zealand Dollar moves back after central bank’s report

New Zealand’s dollar has lost ground against the US Dollar following the Reserve Bank of New Zealand’s latest inflation expectations report. The report suggests that prices are likely to fall in the future, capping interest rates, a negative for NZD.

The NZD/USD pair has lost 0.37% on the day and moved back to lows not witnessed since November 3. The pair is trading at 1.69 at the time of writing. The market mood sours on the back of a vaguely downbeat outlook for the global economy, as New Zealand is a major exporter of commodities.

The RBNZ’s Q3 inflation expectations report showed respondents expected inflation to fall to a lower level in a year than in the previous report. Lower inflation expectations imply the RBNZ is less likely to raise interest rates, which are currently at 5.50%.

The US Federal Reserve is also unlikely to raise interest rates, as there is little incentive for traders to borrow in either NZD or USD and invest in the other, known as the ‘carry trade’.