New Zealand Dollar rises as future RBNZ rate hikes are priced in

• With PBOC benchmark rates held at 3.00% and 3.50%, NZD/USD moved higher.
• Ahead of the forthcoming pivotal inflation figures, expectations of an RBNZ rate rise remain elevated.
• Bets that the Fed would hold rates steady in October weighed on the USD, lending support to the pair.

The People’s Bank of China (PBOC) left its benchmark Loan Prime Rates (LPRs) at 3.00% for the one-year tenor and 3.50% for the five-year tenor on Tuesday. Following the announcement, the New Zealand Dollar (NZD) retained its losses, while NZD/USD advanced. The pair is extending its winning run to a fourth successive day, changing hands near 0.5690 during Tuesday’s European session.

A third successive rate increase next week is largely priced into markets, taking the policy rate to 3.00%. Investors anticipate further rises to 3.75% or above next year, substantially exceeding the Reserve Bank of New Zealand’s (RBNZ) estimate of 3.20%. Chief Economist Paul Conway said last week that the late-October decision was still open. Although the central bank continued to regard a higher official cash rate as the most likely next step, he noted that its timing had yet to be decided. The forthcoming inflation report will therefore be pivotal in determining whether additional tightening is justified.

Growing expectations that the Federal Reserve (Fed) will keep interest rates on hold put pressure on the US Dollar (USD), also helping NZD/USD advance. Last week, Fed Chair Kevin Warsh voiced confidence in the US economy’s resilience but gave no specific indication of when further rate changes might occur or how likely they were.

Fed funds futures traders anticipate no change to rates at the October policy meeting, according to the CME FedWatch tool. For December, however, they assign a 93.5% probability to a rate increase.

Dollar rally loses momentum as TD Securities identifies signs of a top

TD Securities says that “after a month of relentless rally, the USD shows signs of topping,” highlighting apparent resistance to the Dollar’s recent surge as its momentum weakens.