New Zealand Dollar drops sharply as RBNZ leaves rates unchanged ahead Fed decision

• The New Zealand Dollar falls sharply on Wednesday, losing nearly 1% following an unexpected monetary policy decision.
• The Reserve Bank of New Zealand kept its benchmark interest rate unchanged at 2.75%, against market expectations of a 25-basis-point hike.
• The US Dollar extends its gains ahead of the Federal Reserve's monetary policy announcement.

NZD/USD falls sharply on Wednesday, losing 0.98% on the day to trade around 0.5625 at the time of writing. The New Zealand Dollar (NZD) faces significant selling pressure after the Reserve Bank of New Zealand (RBNZ) unexpectedly left its benchmark interest rate unchanged.

The RBNZ announced on Wednesday that it is keeping its Official Cash Rate (OCR) unchanged at 2.75%, surprising investors who had widely anticipated a 25-basis-point (bps) increase to 3.00%. The decision triggered a sharp decline in the Kiwi, as markets had already priced in further monetary tightening in October.

However, despite holding rates steady, the New Zealand central bank maintained a hawkish stance. In its monetary policy statement, the RBNZ indicated that further interest rate increases are likely to be necessary, although their timing and magnitude will depend on the economic outlook.

Investors now turn their attention to the Federal Reserve's (Fed) monetary policy announcement, scheduled for later on Wednesday. Markets widely expect the central bank to leave interest rates unchanged within the 3.75%-4.00% range, following the 25-basis-point increase delivered in September.

According to the CME FedWatch tool, the chance of another rate hike at this meeting stands at just 9%. Investors are therefore focusing primarily on remarks from Fed Chair Kevin Warsh, which could provide fresh clues about the trajectory of US interest rates through the end of the year.

Against this backdrop, a hawkish message from the Fed could provide additional support to the US Dollar (USD) and extend the downward pressure on NZD/USD, while expectations of further monetary tightening in New Zealand could help limit the Kiwi's losses.

NZD/USD technical analysis

In the four-hour chart, NZD/USD trades at 0.5622, holding a bearish near-term bias as it remains capped beneath the 100-period simple moving average (SMA) at 0.5643 and the 200-period SMA at 0.5666. The pair is also trading just under a nearby horizontal cap at 0.5630, reinforcing overhead supply, while the Relative Strength Index (14) has recovered from oversold territory toward the low-30s, hinting that downside momentum is easing but not yet reversing.

On the topside, immediate resistance aligns at 0.5630, followed by the 100-period SMA at 0.5643 and then the 200-period SMA at 0.5666, with a stronger barrier emerging at 0.5710 if buyers extend a corrective bounce. On the downside, the next notable support is the prior horizontal floor at 0.5564, where a break would reopen the broader decline and expose further weakness in the kiwi.

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