New Zealand Dollar draws limited buying interest as USD weakness cushions losses

Following the RBNZ decision, NZD/USD finds it difficult to extend its modest rebound from the subsequent swing low.
Lower bond yields and hopes of diplomacy with Iran put pressure on the USD, lending support to the pair.
Further declines remain the more likely outcome, with fundamentals favouring bearish traders.

Trading around the 0.5630-0.5625 region, NZD/USD slips during Friday's Asian session and gives back some of the previous day's modest gain. The retreat interrupts its rebound from the two-week low reached after Wednesday's Reserve Bank of New Zealand (RBNZ) decision. The pair remains on course for heavy losses for the first time in three weeks.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

At 2.75%, the RBNZ's Official Cash Rate (OCR) was unexpectedly left on hold, disappointing investors who had regarded a 25-basis-point (bps) increase as almost certain. Among the four members favouring no change was RBNZ Governor Anna Breman. They preferred to assess the lagged effects of the July and September rate rises, a stance that overshadowed the committee's tightening bias and weighed on the New Zealand Dollar (NZD). However, selling pressure on the US Dollar (USD) for a third consecutive day appears to be limiting the scope for further NZD/USD weakness.

A sharp fall in US bond yields reflects traders' removal of the geopolitical risk premium as hopes revive for diplomatic engagement between the US and Iran. This is weighing on the safe-haven dollar. Nevertheless, caution persists over the US-Iran confrontation concerning the Strait of Hormuz and intensifying hostilities between the Iran-backed Houthis and Saudi Arabia. With uncertainty keeping crude oil prices elevated, inflation concerns are increasing and expectations of a hawkish US Federal Reserve (Fed) are strengthening. These factors could curb the dollar's losses.

The probability of a December increase in US borrowing costs stands at around 75%, according to CME Group's FedWatch Tool. Thursday's US economic releases reinforced those expectations: third-quarter growth accelerated to an annualised rate of 3.4%, while inflation increased in September. The data therefore support the prospect of renewed USD buying at lower levels. For NZD/USD, this suggests that the path of least resistance is still downwards, with any substantial recovery attempt more likely to attract selling.

US Dollar Performs Best Against New Zealand Dollar Today

Today's percentage movements in the US Dollar (USD) against the major currencies listed are set out below. Its strongest performance was against the New Zealand Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.20%	-0.15%	-0.27%	-0.15%	0.09%	0.09%	-0.48%
EUR	0.20%		0.05%	-0.09%	0.06%	0.30%	0.28%	-0.28%
GBP	0.15%	-0.05%		-0.13%	0.01%	0.25%	0.24%	-0.33%
JPY	0.27%	0.09%	0.13%		0.14%	0.37%	0.37%	-0.20%
CAD	0.15%	-0.06%	-0.01%	-0.14%		0.23%	0.23%	-0.34%
AUD	-0.09%	-0.30%	-0.25%	-0.37%	-0.23%		-0.01%	-0.56%
NZD	-0.09%	-0.28%	-0.24%	-0.37%	-0.23%	0.00%		-0.56%
CHF	0.48%	0.28%	0.33%	0.20%	0.34%	0.56%	0.56%

Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the US Dollar on the left and following that row across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.