RBNZ rates unchanged: New Zealand Dollar falls sharply ahead of Fed decision

• Nearly 1% is wiped off the New Zealand Dollar on Wednesday after an unexpected monetary policy decision.
• At 2.75%, the Reserve Bank of New Zealand's benchmark interest rate remains unchanged, defying market expectations for a 25-basis-point increase.
• Ahead of the Federal Reserve's monetary policy announcement, the US Dollar adds to its gains.

NZD/USD is down 0.98% on Wednesday. At the time of writing, the pair trades around 0.5625 following a sharp decline. Heavy selling in the New Zealand Dollar (NZD) follows the Reserve Bank of New Zealand's (RBNZ) unexpected decision to hold its benchmark interest rate steady.

A 25-basis-point (bps) rise to 3.00% had been widely anticipated by investors. Instead, the RBNZ announced on Wednesday that its Official Cash Rate (OCR) would remain at 2.75%. With further monetary tightening in October already priced in, the surprise decision sent the Kiwi sharply lower.

The rate hold did not signal a shift away from the New Zealand central bank's hawkish stance. Its monetary policy statement said further interest rate increases were likely to be needed, with the economic outlook determining their timing and scale.

Later on Wednesday, attention shifts to the Federal Reserve's (Fed) monetary policy announcement. Following September's 25-basis-point increase, markets widely anticipate that rates will be held within the 3.75%-4.00% range.

Just 9% is the probability of another rate increase at this meeting, according to the CME FedWatch tool. The main focus for investors is therefore Fed Chair Kevin Warsh's remarks, which could offer new signals on the path of US interest rates through the end of the year.

Further pressure on NZD/USD could follow if a hawkish Fed message lends additional support to the US Dollar (USD). Expectations of more monetary tightening in New Zealand, however, could help contain the Kiwi's losses.

NZD/USD: near-term technical outlook

At 0.5622 on the four-hour chart, NZD/USD retains a bearish near-term bias. The pair remains below both the 100-period simple moving average (SMA) at 0.5643 and the 200-period SMA at 0.5666. A nearby horizontal ceiling at 0.5630 also sits just above the current price, adding to overhead selling pressure. Meanwhile, the Relative Strength Index (14) has rebounded from oversold territory towards the low-30s, suggesting that downward momentum is fading rather than reversing.

Initial resistance stands at 0.5630. Beyond that, the 100-period SMA at 0.5643 and the 200-period SMA at 0.5666 mark the next hurdles. A sustained corrective rebound would bring a stronger barrier at 0.5710 into view. Below the market, the previous horizontal floor at 0.5564 provides the next significant support. A break beneath it would revive the broader decline and leave the kiwi vulnerable to further losses.

(The technical analysis of this story was written with the help of an AI tool. Know more.)