0.5700 area: New Zealand Dollar pares gains following softer CPI inflation data

• 0.5705: NZD/USD trims gains in early Asian trading on Thursday.
• 3.7% YoY: New Zealand’s third-quarter CPI inflation eases below expectations.
• Ahead of next week’s policy meeting, the Fed outlook is expected to set market direction.

NZD/USD stabilises near 0.5705. In Thursday’s early Asian session, the New Zealand Dollar (NZD) trims its advance against the US Dollar (USD) after Consumer Price Index (CPI) inflation undershot expectations. Later on Thursday, the US will release its weekly Initial Jobless Claims report.

New Zealand’s third-quarter (Q3) annual CPI inflation slowed to 3.7% YoY, Thursday’s release from Statistics New Zealand showed. That compares with the previous reading of 4.1% and a forecast of 3.8%. Quarter on quarter, CPI increased 0.7% in Q3, down from 1.5% in Q2 and below the expected 0.8%.

The softer CPI release prompted a modest initial decline in the Kiwi. Inflation nevertheless stayed above the upper limit of the Reserve Bank of New Zealand’s (RBNZ) target range, reinforcing expectations of a rate increase next week.

According to Reuters, market pricing assigns a nearly 98% probability to another RBNZ rate increase next week. It also implies a 100% chance of 50 basis points (bps) of increases before the end of February.

Ahead of the Federal Reserve’s (Fed) policy meeting next week, US traders are assessing its prospective interest-rate path. Fed Chair Kevin Warsh offered no indication last week of whether he believes further rate increases will be necessary, or when they might come.

Scotiabank’s chief FX strategist Shaun Osborne said: “There's not really an overarching theme for markets... and I think it's going to stay that way at least until next week into the FOMC,” adding: “We need to get a sense of what the Fed's thinking.”

25bp hike expected by ING as hawkish RBNZ leaves Kiwi undervalued

Expectations for tighter policy have strengthened steadily, according to ING analysts. They point to investors “pricing around 18-21bp for next week’s meeting since RBNZ’s Chief Economist Paul Conway delivered hawkish remarks last week.” Conway, they note, “explicitly said this month’s decision is wide open, that he sees risk to the upside for 4Q CPI and that the NZD weakness is worrying,” which ING says “felt like an attempt to drive market pricing higher.” The bank’s conclusion is that, “barring a major surprise lower in CPI tomorrow, we expect a 25bp hike next week.”

Valuation also supports the currency, in ING’s assessment: “NZD remains cheap relative to its short-term fair value model,” and the analysts “expect it to keep recovering ground against its closest peer, AUD.” Their base case is that “we see NZD/USD trading above 0.570 into year-end,” with hawkish RBNZ messaging and undervaluation underpinning additional Kiwi gains.

5.6/10 Speechtracker score: Warsh weighs investment surge and AI risks

A 5.6/10 FXS Speechtracker score placed Fed Chair Warsh’s moderately constructive but guarded remarks slightly below the historical average of 6.1/10. His acknowledgement of being “over-scarred from the global financial crisis” points to a continuing preference for protecting against downside and financial stability risks. That caution sits alongside his references to structural growth and an investment surge supported by “good policies.” Warsh stressed that the October and December meetings should not be prejudged. His comments that AI would affect demand before supply, with uncertain near-term employment consequences, further underline a data-dependent approach, limiting any immediate hawkish implication for the Dollar.

At 127.51, the FXS Fed Sentiment Index remained firmly hawkish, registering a change of 0.00 points. Despite the slightly softer FXS Speechtracker reading, the speech therefore left perceptions of the policy path materially unchanged. An index level well above 100 suggests markets continue to view the Fed as hawkish. However, Warsh’s emphasis on clearer output, employment and inflation data, alongside tail risks, points to a more nuanced assessment of risks rather than an outright change in Dollar-bullish messaging.

Technical Analysis: 100-day SMA keeps NZD/USD outlook negative

A tentative base appears to be forming within the recent range on the NZD/USD daily chart. The pair remains above the Bollinger Bands mid-line and comfortably clear of the lower band. However, trading below the 100-day Simple Moving Average (SMA) continues to constrain the broader recovery. Around 56, the firmer Relative Strength Index (14) signals improving bullish momentum, though not yet a decisive shift, as the price moves between band support and the trend barrier overhead.

The first significant upside barrier is the 100-day SMA at 0.5775. A daily close above it would create scope for a more durable rebound. Initial downside support sits around 0.5705 in the upper Bollinger Band area, ahead of the mid-band near 0.5635. A breach of the lower band at approximately 0.5565 would leave the pair vulnerable to a larger decline within the existing range.

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