Ahead of Fed decision, New Zealand Dollar slides sharply as RBNZ keeps rates on hold

• Heavy selling sends the New Zealand Dollar nearly 1% lower on Wednesday after a surprise monetary policy decision.
• Markets had anticipated a 25-basis-point hike, but the Reserve Bank of New Zealand left its benchmark interest rate at 2.75%.
• Ahead of the Federal Reserve's monetary policy announcement, the US Dollar builds on its gains.

Heavy selling pressure on the New Zealand Dollar (NZD) pushes NZD/USD sharply lower on Wednesday, with the pair down 0.98% at around 0.5625 at the time of writing. The decline follows the Reserve Bank of New Zealand's (RBNZ) unexpected decision to keep its benchmark interest rate on hold.

Investors were caught off guard on Wednesday when the RBNZ retained its Official Cash Rate (OCR) at 2.75%, rather than delivering the widely expected 25-basis-point (bps) rise to 3.00%. With further monetary tightening in October already priced in, the decision prompted a steep fall in the Kiwi.

The unchanged rate did not, however, signal a shift away from the New Zealand central bank's hawkish stance. Its monetary policy statement suggested that additional interest rate increases would probably be needed, with the economic outlook determining their timing and size.

Attention now shifts to the Federal Reserve's (Fed) monetary policy announcement later on Wednesday. Following September's 25-basis-point increase, markets broadly anticipate that the central bank will hold interest rates in the 3.75%-4.00% range.

The CME FedWatch tool puts the probability of a further rate increase at this meeting at only 9%. As a result, investors are looking chiefly to comments from Fed Chair Kevin Warsh for fresh indications of the path of US interest rates through the end of the year.

A hawkish signal from the Fed could consequently bolster the US Dollar (USD) further, adding to downward pressure on NZD/USD. Expectations of additional monetary tightening in New Zealand, however, could cushion the Kiwi's losses.

NZD/USD technical analysis: Can the pair ease the bearish pressure?

A bearish near-term bias persists on the four-hour chart, where NZD/USD trades at 0.5622 below both the 100-period simple moving average (SMA) at 0.5643 and the 200-period SMA at 0.5666. A nearby horizontal resistance level at 0.5630 also sits just above the pair, adding to overhead supply. Meanwhile, the Relative Strength Index (14) has climbed out of oversold territory towards the low-30s, suggesting that bearish momentum is moderating without yet signalling a reversal.

Any recovery would first encounter resistance at 0.5630, before the 100-period SMA at 0.5643 and the 200-period SMA at 0.5666. Should buyers sustain a corrective rebound, a firmer hurdle awaits at 0.5710. Below current levels, 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.)