New Zealand Dollar advances towards 0.5700 on prospects of an RBNZ rate hike

• NZD/USD advances towards 0.5690 during Asian trading on Friday.
• To curb inflation, the RBNZ is poised to deliver aggressive interest rate increases.
• An October Fed rate hold carries a market-implied probability of around 92.8%.

Mounting expectations of an interest rate increase by the Reserve Bank of New Zealand (RBNZ) lend support to the New Zealand Dollar (NZD) against the US Dollar (USD), with NZD/USD strengthening towards 0.5690 in Friday’s Asian session. Attention later on Friday will turn to the preliminary October US S&P Global Purchasing Managers Index (PMI).

Softer Consumer Price Index (CPI) inflation figures have not prevented the Kiwi from gaining against the USD. For the fourth quarter, many analysts anticipate inflation accelerating to well above 4%, potentially remaining outside the RBNZ’s 1-3% target band for longer than the central bank previously envisaged.

According to Bloomberg, market pricing now implies roughly an 85% probability of a quarter-point rise in the Official Cash Rate (OCR) to 3.0% at the RBNZ’s October meeting. The likelihood of a further increase to 3.25% in December stands at almost one in two.

“Higher for longer inflation is a major headache for the RBNZ,” said Mark Smith, senior economist at ASB Bank in Auckland. He expects inflation to remain above 3% until the fourth quarter next year and anticipates a rate increase on 28 October. Mark added: “We expect the RBNZ to acknowledge that they have more work to do and to maintain a conditional tightening bias,”

Meanwhile, bets on a US rate increase have been scaled back after Federal Reserve (Fed) Chair Kevin Warsh declined to offer a clear indication of when the next rise might take place.

The CME FedWatch Tool puts the market-implied probability of unchanged Fed interest rates next week at 92.8%. For December, traders are pricing in an 80.5% likelihood of an increase.

Fed hawkishness limits NZD gains despite RBNZ tightening

New Zealand’s inflation conditions and commodity trends continue to justify a hawkish RBNZ stance, according to strategists at Brown Brothers Harriman. They cite “above target inflation and still elevated oil prices” as reasons for additional rate rises, noting that “the swaps curve price in 85% odds of a 25bps RBNZ rate hike to 3.00% on October 28 and more than 100bps of tightening over the next twelve months to 3.75% - near the upper end of the RBNZ’s estimated neutral range of 2.20%-4.10%.” The currency implications are less pronounced, however. BBH stresses that “nonetheless, NZD/USD upside is constrained because Fed tightening curbs the scope for policy convergence.”

Warsh highlights investment growth and AI risks without committing to policy moves

A score of 5.6/10 on the FXS Speechtracker places Fed Chair Warsh’s speech modestly below the historical average of 6.1/10. Despite broadly positive comments on structural growth and a surge in investment, the reading indicates a slightly less impactful tone than the established baseline. His acknowledgement of being “over-scarred from the global financial crisis” reveals an enduring cautious bias. At the same time, Warsh says the world has aligned with the Fed’s expectations and emphasises the strength of policy-driven investment. By repeatedly declining to prejudge the October and December meetings, he underlines the importance of incoming data and offers limited near-term direction for the Dollar. His treatment of AI as a demand-side force with uncertain consequences for employment, alongside forthcoming field hearings and task forces, suggests a forward-looking yet exploratory approach to technology’s risks and opportunities for monetary policy and financial stability.

With a move of 0.00 points, the FXS Fed Sentiment Index held at an elevated 127.51. This confirms that the overall policy tone remains firmly hawkish, even though the FXS Speechtracker score fell short of its historical average. The unchanged index suggests that Warsh’s cautious remarks and reluctance to commit to a particular rate path did not materially shift market perceptions of the Fed’s hawkish bias or the underlying support for the Dollar.

Technical Analysis: NZD/USD Remains Bearish Beneath the 100-Day SMA

Remaining below the 100-day simple moving average (SMA), NZD/USD maintains a bearish near-term bias on the daily chart. Trading above the Bollinger Bands’ 20-day middle line points to some short-term stabilisation following the recent decline, although the upper band is already providing nearby resistance. At 52.8, the Relative Strength Index (14) has returned to neutral territory. This suggests that oversold conditions are easing rather than signalling a decisive bullish turn.

The upper Bollinger band, around 0.5705, provides the first resistance level, ahead of the 100-day SMA at 0.5770. Selling pressure is likely to return while the pair remains below these levels. Initial support lies near 0.5635 at the middle Bollinger band, followed by a firmer structural floor around 0.5565 at the lower band. A breach of that latter area would pave the way for the broader downtrend to resume towards fresh lows.

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