Rising RBNZ rate hike bets lift New Zealand Dollar to near 0.5700

• NZD/USD edges towards 0.5700 as Monday’s Asian trading gets under way.
• Another RBNZ rate increase on Wednesday is anticipated by markets.
• Expectations of an unchanged Fed policy rate have strengthened as the likelihood of an October hike has declined.

The New Zealand Dollar (NZD) gains modest ground against the US Dollar (USD), supported by rising expectations that the Reserve Bank of New Zealand (RBNZ) will raise interest rates. During Monday’s early Asian session, NZD/USD strengthens towards 0.5700. Attention will turn to Wednesday’s interest rate decisions from the RBNZ and the US Federal Reserve (Fed), which traders will watch closely.

A further 25 basis points (bps) increase to 3.00% is widely anticipated when New Zealand’s central bank meets on Wednesday. Many analysts expect the country’s inflation to accelerate well beyond 4% in the fourth quarter. It could also remain outside the RBNZ’s 1-3% target band for longer than the central bank previously forecast.

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

After the Fed increased its benchmark rate in September for the first time in about three years, expectations of additional hikes started to change as Fed Chair Kevin Warsh repeatedly adopted a cautious tone. At the International Monetary Fund’s (IMF) annual meeting, Warsh said he would not prejudge upcoming rate decisions.

Further hikes need not be rushed, according to Fed Vice Chair Philip Jefferson and Governor Christopher Waller. The CME FedWatch tool shows that the implied likelihood of an October increase has dropped to around 9.4%, from as high as 70%.

Can persistent inflation support NZD as Fed tightening limits kiwi gains?

A softer headline CPI reading has not removed underlying price pressures, according to strategists at Brown Brothers Harriman, who say “underlying inflation points to persistent price pressure.” The RBNZ’s sectoral factor model, they note, “printed at 2.8% y/y for a second straight quarter, near the top of its 1-3% target range,” and “CPI ex. petrol remained at 3.2% y/y for a fourth consecutive quarter,” highlighting how persistent core price dynamics remain.

BBH sees this backdrop as a case for further tightening, arguing that “above target inflation and still elevated oil prices argue for additional RBNZ rate hikes.” In its assessment, “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 domestic hawkish backdrop may not translate fully into kiwi gains, however. BBH warns that “nonetheless, NZD/USD upside is constrained because Fed tightening curbs the scope for policy convergence,” restricting the currency’s ability to benefit.

What does Warsh’s investment and AI focus signal without a policy commitment?

A cautious tone emerges from Fed Chair Warsh’s speech despite his positive references to structural growth and surging investment. The FXS Speechtracker assigns it a score of 5.6/10, slightly below the historical average of 6.1/10. His reference to being “over-scarred from the global financial crisis” points to a continuing emphasis on risk management and financial stability, even while he identifies AI and private-sector investment as major sources of upside for the real economy. By declining to prejudge the October and December meetings and stressing the need for clearer data on output, employment and inflation, Warsh signals a data-dependent approach. This leaves Dollar rate expectations flexible while retaining a firm commitment to price stability.

Market perceptions of the Fed’s policy bias were little affected by the speech: the FXS Fed Sentiment Index recorded a 0.00-point move and remained at a hawkish 127.51. Taken together, the elevated index reading and the speech’s slightly below-baseline score suggest that Warsh preserved the established hawkish policy backdrop for the Dollar rather than providing fresh signals of tightening.

Technical Analysis: Can NZD/USD break above the 100-day SMA?

The daily chart continues to show a bearish bias for NZD/USD, with spot trading below both the 100-day moving average (MA) and the upper Bollinger band. Holding above the middle Bollinger band nevertheless points to some short-term stabilisation within the wider downtrend. At 54.4, the Relative Strength Index (14) indicates neutral-to-positive momentum, slightly easing immediate selling pressure but leaving the bearish structure intact.

The upper Bollinger band, around 0.5710, provides the first resistance, followed by the more substantial 100-day MA barrier at 0.5770. Sellers are likely to regain control there if NZD/USD attempts to recover. Below current levels, the middle Bollinger band near 0.5635 offers support. A break would bring the lower Bollinger band at 0.5560 into focus, marking a deeper demand zone should bearish pressure return decisively.

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