New Zealand Dollar climbs towards 0.5700 as RBNZ rate hike expectations strengthen

• The 0.5700 level comes into view as NZD/USD edges up in early Asian trading on Monday.
• A further RBNZ rate rise on Wednesday is anticipated by markets.
• Diminishing odds of an October Fed rate rise reinforce expectations that policymakers will leave rates unchanged.

Around 0.5700, NZD/USD is edging higher in Monday’s early Asian trading as expectations build for a Reserve Bank of New Zealand (RBNZ) rate rise. The prospect of tighter policy is lending modest support to the New Zealand Dollar (NZD) against the US Dollar (USD). Attention now turns to Wednesday’s interest rate decisions from the RBNZ and the US Federal Reserve (Fed).

Inflation in New Zealand is expected by many analysts to accelerate to well above 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. Against that backdrop, Wednesday’s policy meeting is widely expected to bring another 25 basis points (bps) increase, taking the rate to 3.00%.

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,”

September brought the Fed’s first benchmark rate increase in about three years, but repeated expressions of caution from Fed Chair Kevin Warsh subsequently began to reshape expectations for further rises. Speaking at the International Monetary Fund’s (IMF) annual meeting, Warsh said he would not prejudge future rate decisions.

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

Persistent inflation supports NZD, while Fed tightening restrains kiwi gains

A softer headline CPI reading has not dispelled concerns about inflation among strategists at Brown Brothers Harriman, who note that “underlying inflation points to persistent price pressure.” In support of that assessment, they say 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,” and that “CPI ex. petrol remained at 3.2% y/y for a fourth consecutive quarter,” highlighting the persistence of underlying price pressures.

For BBH, the case for further tightening rests on the view that “above target inflation and still elevated oil prices argue for additional RBNZ rate hikes.” On market pricing, 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 outlook does not, however, translate into unrestricted scope for kiwi gains. BBH cautions that “nonetheless, NZD/USD upside is constrained because Fed tightening curbs the scope for policy convergence,” preventing the currency from taking full advantage of that backdrop.

Warsh highlights investment surge and AI while leaving policy options open

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. That softer reading captures a cautious tone, notwithstanding positive references to structural growth and a surge in investment. 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 important sources of upside for the real economy. By declining to prejudge the October and December meetings and stressing the need for a clearer picture of output, employment and inflation data, Warsh signals a data-dependent approach. This leaves Dollar rate expectations adaptable, but still grounded in a commitment to price stability.

A move of 0.00 points left the FXS Fed Sentiment Index unchanged at a still-hawkish 127.51, suggesting that the speech made no material difference to market perceptions of the Fed’s policy leanings. 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 delivering new signals of tightening.

Technical Analysis: NZD/USD Faces a Ceiling Below the 100-day SMA

Trading below both the 100-day moving average (MA) and the upper Bollinger band leaves NZD/USD with a bearish bias on the daily chart. Nevertheless, the pair is holding above the Bollinger middle band, pointing to some short-term stabilisation within the wider downtrend. At 54.4, the Relative Strength Index (14) signals neutral-to-positive momentum, slightly easing immediate selling pressure without reversing the bearish underlying structure.

The upper Bollinger band around 0.5710 provides the first resistance, followed by a more substantial hurdle at the 100-day MA at 0.5770. A recovery towards that level would likely draw renewed selling. Support, meanwhile, lies near 0.5635 at the Bollinger middle band. A break below would open the way towards the lower Bollinger band at 0.5560, a deeper area of demand that would come into focus if selling pressure returned decisively.

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