RBNZ rate hike expectations strengthen, but New Zealand Dollar slips

• 0.25% lower on Monday: NZD/USD retreats despite expectations of additional monetary tightening in New Zealand.
• 3.0% is the benchmark rate markets expect after a third successive interest rate increase.
• Ahead of the Fed's monetary policy decision and major US economic releases, the US Dollar continues to face pressure.

NZD/USD is down 0.25% on Monday. The pair trades around 0.5680 at the time of writing, even as expectations build for an interest rate increase in New Zealand. Prospects of further tightening by the Reserve Bank of New Zealand (RBNZ) have offered little benefit to the New Zealand Dollar (NZD). Investors are awaiting several major monetary policy decisions and economic releases this week.

Another rate increase has recently become the focus of expectations for the RBNZ's next policy decision. TD Securities has revised its near-term outlook, explaining that “we had forecast the RBNZ to pause at its October meeting. We now forecast the Bank to hike the Official Cash Rate 25bps at this week's meeting to 3%.” The bank's strategists stress that the revised timing does not alter their subsequent rate calls: “nonetheless, we stick to our call for 25bps hikes in December and February. Accordingly, this pushes our terminal rate from 3.25% to 3.50%.”

Although New Zealand's latest figures showed a slightly larger-than-expected easing in third-quarter inflation, economists expect consumer price growth to accelerate again in the fourth quarter. Inflation could consequently exceed 4%, putting it above the RBNZ's 1% to 3% target range.

To curb those price pressures, the central bank could be encouraged to maintain its tightening policy. That could, in turn, lend support to the New Zealand Dollar.

Expectations of unchanged interest rates at the Federal Reserve's (Fed) October 27-28 policy meeting continue to weigh on the US Dollar (USD).

Pricing tracked by the CME FedWatch tool puts the probability of an October rate hold at 90%. For December, markets assign a 79% chance to another interest rate increase.

NZD/USD could benefit from this possible policy divergence between the two central banks, especially if the RBNZ reaffirms plans to keep raising rates.

Upcoming US economic data are also in focus. Investors are paying particular attention to the Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation measure, alongside preliminary third-quarter Gross Domestic Product (GDP) figures. By shaping expectations for the US interest rate path, these releases could also influence the US Dollar's direction.

NZD/USD: technical outlook

At 0.5687 on the one-hour chart, NZD/USD sits between its key moving averages. Support from the 200-period simple moving average (SMA) at 0.5665 remains intact, but the pair is just below the 100-period SMA at 0.5689. This positioning suggests limited intraday upside within a broadly supported structure. Following the recent retreat from the 0.5700 area, the Relative Strength Index (14) reads 47.2, marginally below the neutral 50 threshold and consistent with consolidating momentum.

The 100-period SMA at 0.5689 provides the nearest upside resistance, with the horizontal barrier at 0.5710 next. Initial downside support lies at the horizontal level of 0.5668, followed by the 200-period SMA at 0.5665. Buyers would be expected to defend the broader intraday range at that moving average.

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