0.5700 in Sight as New Zealand Dollar Rises on Stronger RBNZ Rate Hike Bets

• 0.5700 is in sight as NZD/USD edges up in early Asian trading on Monday.
• Another RBNZ rate increase on Wednesday is in focus for markets.
• A decline in the odds of an October Fed rate hike has reinforced expectations of unchanged rates.

NZD/USD strengthens towards 0.5700. In Monday’s early Asian session, the New Zealand Dollar (NZD) gains modestly against the US Dollar (USD) as expectations build for a Reserve Bank of New Zealand (RBNZ) rate increase. Wednesday’s interest rate decisions from the RBNZ and the US Federal Reserve (Fed) will be closely watched by traders.

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

Mark Smith, senior economist at ASB Bank in Auckland, expects inflation to remain above 3% until the fourth quarter next year and forecasts a rate rise on 28 October. “Higher for longer inflation is a major headache for the RBNZ,” he said. Mark 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, repeated caution from Fed Chair Kevin Warsh prompted a shift in expectations for additional hikes. At the International Monetary Fund’s (IMF) annual meeting, Warsh said he would not prejudge subsequent rate decisions.

Further tightening need not be rushed, according to Fed Vice Chair Philip Jefferson and Governor Christopher Waller. The CME FedWatch tool put the implied probability of an October rate increase at around 9.4%, down from as high as 70%.

NZD outlook: sticky inflation offers support, Fed tightening limits gains

A softer headline CPI reading has not removed concerns over price persistence, according to strategists at Brown Brothers Harriman, who note that “underlying inflation points to persistent price pressure.” The RBNZ’s sectoral factor model “printed at 2.8% y/y for a second straight quarter, near the top of its 1-3% target range,” they highlight. Alongside this, “CPI ex. petrol remained at 3.2% y/y for a fourth consecutive quarter,” reinforcing the picture of sticky core price dynamics.

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.” The strategists note that “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 cautions that “nonetheless, NZD/USD upside is constrained because Fed tightening curbs the scope for policy convergence,”

5.6/10 speech score: Warsh highlights AI and investment, leaves policy open

A score of 5.6/10 on the FXS Speechtracker puts Fed Chair Warsh’s speech modestly below the historical average of 6.1/10. The reading reflects caution despite his positive references to structural growth and an investment surge. His comment about being “over-scarred from the global financial crisis” points to a continued focus on risk management and financial stability. At the same time, Warsh identifies AI and private-sector investment as important upside drivers for the real economy. By declining to prejudge the October and December meetings and stressing the need for a clearer picture from output, employment and inflation data, he signals a data-dependent approach. This leaves Dollar rate expectations flexible, while retaining an anchor in the commitment to price stability.

At 127.51, the FXS Fed Sentiment Index remained hawkish, with a change of 0.00 points. The unchanged reading suggests the speech had no material effect on market perceptions of the Fed’s policy bias. Taken together, the elevated index and the slightly below-baseline speech score indicate that Warsh preserved the established hawkish policy backdrop for the Dollar without introducing fresh tightening signals.

Technical Analysis: 100-day SMA continues to cap NZD/USD

Below the 100-day moving average (MA) and the upper Bollinger band, NZD/USD retains a bearish bias on the daily chart. Holding above the Bollinger middle band points to some short-term stabilisation within the wider downtrend. The Relative Strength Index (14), at 54.4, indicates neutral-to-positive momentum. This slightly eases immediate selling pressure but does not reverse the bearish structural outlook.

The upper Bollinger band around 0.5710 provides the first resistance level. Beyond it, the 100-day MA at 0.5770 presents a stronger hurdle, where sellers are likely to regain control if the pair tries to recover. Support lies near 0.5635 at the Bollinger middle band. A break below would expose the lower Bollinger band at 0.5560, bringing this deeper demand zone into focus if bearish pressure returns decisively.

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