The New Zealand dollar strengthened to $0.570, its highest level in a month, even as inflation cooled more than expected in the third quarter. Annual inflation slowed to 3.7% from 4.1% in the previous quarter, coming in below the market forecast of 3.8%. On a quarterly basis, the CPI rose 0.7%, down from 1.5% in the second quarter and slightly under the 0.8% consensus estimate.
Despite the moderation, inflation remains above the Reserve Bank of New Zealand’s 1–3% target band, bolstering expectations of another interest rate increase next week. The easing in price pressures is also widely seen as temporary, with some economists expecting inflation to re-accelerate in the fourth quarter as rising geopolitical tensions in the Middle East push fuel costs higher. Markets are now almost fully pricing in a further 25-basis-point rate hike at the central bank’s upcoming policy meeting.
