New Zealand Dollar slips below 0.5700 amid RBNZ rate hike bets; attention turns to CPI inflation data

• Selling pressure takes NZD/USD towards 0.5680 during early Asian trading on Wednesday.
• An October RBNZ rate hike now carries an 80% probability in investor pricing, according to swaps data.
• Traders pared October rate-hike bets after comments from the Fed Chair.

Caution ahead of New Zealand’s inflation release weighs on NZD/USD, with the pair easing towards 0.5680 in Wednesday’s Asian session and ending a four-day run of gains. The country’s third-quarter (Q3) Consumer Price Index (CPI) inflation figures are scheduled for release later on Thursday.

A modest easing in New Zealand’s third-quarter inflation is expected by economists, although higher oil prices could make that relief temporary. An acceleration in the final three months of the year would strengthen the argument for interest rate increases. Forecasts put the Q3 CPI rise at 3.8% YoY, against 4.1% in Q3. Quarter-on-quarter CPI inflation is expected to slow from 1.5% in Q2 to 0.8% in Q3.

For the Reserve Bank of New Zealand (RBNZ) policy meeting next week, swap pricing currently indicates a nearly 80% probability of an interest rate increase to 3.00%.

Oil prices and the currency pose upside risks to the RBNZ’s Q4 outlook, Chief Economist Paul Conway said last week. While describing the likely direction of interest rates as “is most likely up”, Conway stressed that October’s decision was still “wide open.”

By contrast, expectations of an October Federal Reserve (Fed) rate increase have eased following comments by Chairman Kevin Warsh. Speaking at the IMF’s annual meetings in Bangkok last week, Warsh gave no indication of the decision at this month’s FOMC meeting. He nevertheless said that inflation running above expectations had not altered his view of the US economy.

According to the CME FedWatch Tool, the probability of unchanged interest rates at next week’s central bank meeting currently stands at 83.9%. Markets also price in a 90% likelihood of a December rate increase.

Can RBNZ Hike Expectations Support the Dollar as New Zealand Inflation Stays Above Target?

New Zealand’s Q3 CPI release, due Wednesday, is likely to be broadly consistent with official forecasts, according to strategists at Brown Brothers Harriman. They note that “headline CPI is expected at 0.8% q/q (RBNZ projection: 0.8%) vs. 1.5% in Q2 to be up 3.8% y/y (RBNZ projection: 3.9%) vs. 4.1% in Q2.” In their assessment, “above target inflation argues for additional RBNZ rate hikes and offers NZD support,” while the swaps curve now reflects “80% odds of a 25bps RBNZ rate hike to 3.00% on October 28.”

What do Warsh’s investment and AI remarks mean for the Fed’s policy options?

A cautiously constructive tone marked Fed Chair Warsh’s remarks, which received an FXS Speechtracker score of 5.6/10, marginally softer than the historical average of 6.1/10. Warsh acknowledged being "over-scarred" by the Global Financial Crisis, reflecting sensitivity to risk even as he pointed to structural growth and a surge in investment supported by "good policies,". He declined to prejudge the October and December meetings. His focus on AI’s role in supporting demand and improving confidence in data, together with planned field hearings and task forces, suggests a forward-looking Fed weighing both stronger growth prospects and potential downside tail risks to financial stability.

Despite the slightly softer tone identified by the FXS Speechtracker, the FXS Fed Sentiment Index registered a 0.00-point change and remained elevated at 127.51. This indicates that the speech kept the overall policy stance firmly hawkish. In currency markets, the strong investment outlook, emphasis on price stability and high index reading suggest continued support for the Dollar from expectations of an alert Fed that has yet to signal a dovish turn.

Technical Analysis: Can NZD/USD shake off its bearish bias below the 100-day SMA?

A near-term bearish bias persists on the daily chart, where NZD/USD stands at 0.5681. The pair remains below both the 100-day simple moving average (SMA) of 0.5774 and the upper Bollinger Band of 0.5691, with this overhead resistance cluster limiting gains. Support lies at the middle Bollinger Band near 0.5631. Meanwhile, the Relative Strength Index (RSI) has returned to neutral territory at 51.7, pointing to stabilising momentum rather than a decisive turn bullish.

Any advance would first encounter the upper Bollinger Band around 0.5691, ahead of the 100-day SMA at 0.5774. Until that moving average is regained, the broader bias remains tilted to the downside. Immediate support on a decline sits at the middle Bollinger Band of 0.5631; a breach would bring the lower Bollinger Band near 0.5572 into focus as the next bearish target.

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