Near 0.5700: New Zealand Dollar Advances on Prospects of an RBNZ Rate Hike

• 0.5690 is within reach as NZD/USD advances in Friday’s Asian session.
• Aggressive interest rate increases are on the RBNZ’s agenda to curb inflation.
• Around 92.8% odds of an October Fed rate hold are priced into markets.

NZD/USD strengthens to around 0.5690. During Friday’s Asian session, mounting expectations of a Reserve Bank of New Zealand (RBNZ) rate increase lend some support to the New Zealand Dollar (NZD) against the US Dollar (USD). Attention will turn later on Friday to October’s preliminary US S&P Global Purchasing Managers Index (PMI) reading.

Softer Consumer Price Index (CPI) inflation figures have not prevented the Kiwi from advancing against the USD. For many analysts, inflation is likely 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 envisaged.

According to Bloomberg, market pricing now implies about an 85% chance of a quarter-point increase in the RBNZ’s Official Cash Rate (OCR) to 3.0% at its October meeting. The probability of a further rise to 3.25% in December is almost one in two.

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 increase 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,”

By contrast, bets on a US rate increase have been pared back. Federal Reserve (Fed) Chair Kevin Warsh declined to offer any clear indication of how soon rates might rise again.

The CME FedWatch Tool puts the current probability of unchanged Fed rates next week at 92.8%. For December, markets price in an 80.5% chance of an increase.

85% RBNZ Hike Odds: Fed Hawkishness Limits NZD Upside

New Zealand’s inflation conditions and commodity trends continue to favour a hawkish RBNZ stance, according to strategists at Brown Brothers Harriman. They cite “above target inflation and still elevated oil prices” as reasons for additional rate increases. Their assessment of market pricing is 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%.” For the currency, however, BBH sees a more limited impact, noting that “nonetheless, NZD/USD upside is constrained because Fed tightening curbs the scope for policy convergence.”

5.6/10 Speech Score: Warsh Highlights Investment and AI Risks Without Policy Commitment

A score of 5.6/10 on the FXS Speechtracker places Fed Chair Warsh’s speech modestly below the historical average of 6.1/10. Despite broadly positive comments on structural growth and a surge in investment, the score indicates a slightly less impactful tone than the established baseline. Warsh’s admission of being “over-scarred from the global financial crisis” highlights an enduring bias towards caution. At the same time, he observes that the world has aligned with the Fed’s expectations and draws attention to policy-driven investment strength. His repeated refusal to prejudge the October and December meetings underlines the reliance on data and offers little near-term direction for the Dollar. On technology, Warsh presents AI as a demand-side force whose employment effects remain uncertain. Alongside forthcoming field hearings and task forces, this focus suggests a forward-looking yet exploratory approach to technology-related risks and opportunities for monetary policy and financial stability.

At 127.51, the FXS Fed Sentiment Index remains elevated, with a change of 0.00 points. The unchanged reading confirms a firmly hawkish overall policy tone, even though the speech falls short of the FXS Speechtracker’s historical average. It also suggests that Warsh’s cautious remarks and refusal to commit to specific rate paths left market perceptions of the Fed’s hawkish bias, and the underlying support for the Dollar, materially unchanged.

100-day SMA Caps NZD/USD: Technical Outlook Stays Negative

Below the 100-day simple moving average (SMA), NZD/USD retains a bearish near-term bias on the daily chart. Trading above the Bollinger Bands’ 20-day middle line points to some short-term stabilisation following the recent decline. However, the upper band already provides nearby overhead supply. A recovery in the Relative Strength Index (14) to neutral territory at 52.8 suggests that oversold conditions are easing, rather than signalling a decisive bullish turn.

The Bollinger upper band, around 0.5705, provides the first resistance level, ahead of the 100-day SMA at 0.5770. While prices remain below these levels, selling pressure is likely to return. Initial support lies near 0.5635 at the Bollinger middle band, followed by a firmer structural floor around 0.5565 at the lower band. A breach of that latter area would open the way for the broader downtrend to resume towards fresh lows.

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