New Zealand Dollar slips below 0.5600 as traders await US PPI data

• NZD/USD slips towards 0.5545 in early Asian trading on Friday
• Increased bets on interest rate rises lend support to the US Dollar.
• Higher unemployment in New Zealand curbs expectations of further RBNZ rate increases. 

With US Producer Price Index (PPI) figures for October due later on Friday, NZD/USD trades lower at around 0.5545 in the Asian session. Expectations of a larger December interest rate increase from the Federal Reserve (Fed) are gathering strength, lending some support to the US Dollar (USD) and putting pressure on the pair. Traders will be watching the forthcoming inflation release.

Expectations of successive interest rate increases have been bolstered by stubborn US inflation and hawkish comments from Fed officials. A 50-basis-point increase should be considered if core inflation stays high, according to Fed Governor Christopher Waller.

According to the CME FedWatch tool, markets now assign a probability of nearly 85.5% to a Fed rate increase at its December 8-9 meeting, with the likelihood of a half-point rise put at 14.5%.

Friday’s focus will be the October US PPI inflation report. Forecasts point to headline producer prices rising 6.6% YoY and core PPI increasing 5.0% YoY over the same period. Stronger-than-expected readings could provide a boost to the US Dollar.

An 11-year high of 5.7% in New Zealand’s Unemployment Rate has reduced expectations of aggressive RBNZ interest rate increases. The weak labour market figures are consequently weighing on the Kiwi.

Kiwi and Korean won lead gains as concerns over RBNZ mandate ease

Brown Brothers Harriman analysts point to strength in both currencies, noting that "KRW is outperforming across the board on Korean exporters’ dollar selling," while "NZD tops the G10 FX leaderboard." In their assessment, New Zealand’s preliminary election result has had the following effect: "reduces the risk the RBNZ returns to a dual inflation-employment mandate which could have tilted policy in a more dovish direction given weak labor market condition."

Brown Brothers Harriman describes the political position as follows: "New Zealand's ruling center-right coalition holds a one seat majority following Sunday’s election, with final results due November 27." Led by the National Party, the incumbent coalition "wants to stick to the RBNZ’s sole price stability mandate which has been in place since December 2023," in contrast to the opposition’s stance: "The Labour Party, meanwhile, ran on a proposal to return to a dual inflation-employment mandate." These differing policy positions are viewed as an important factor behind the Kiwi’s current outperformance.

Williams signals economic resilience while warning inflation battle remains incomplete

At 7/10 against a historical average of 6.1/10, the FXS Speechtracker score indicates a moderately more hawkish tone from the Fed’s Williams. His remarks express confidence in strong, resilient growth that is “strengthening but not overheating.” A continued tightening bias is supported by his description of inflation as “stubbornly persistent and elevated,” and his view that the central bank “still has work to do” and must act over time to bring inflation back to 2%. He also makes clear that policy seeks to lower the inflation rate, rather than reverse the overall rise in prices, to avoid harming economic conditions.

Despite the firmer-than-usual tone registered by the FXS Speechtracker, perceived hawkishness eased slightly, with the FXS Fed Sentiment Index falling 0.08 points to 147.47. That reading remains comfortably above the neutral threshold of 100, leaving the Fed firmly in hawkish territory. Nevertheless, the modest easing in sentiment suggests a more measured course for future policy adjustments affecting the Dollar.

Technical Analysis: NZD/USD Retains Bearish Bias Below 100-Day SMA

Below both the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-day middle line, NZD/USD continues to fall on the daily chart. Those indicators now limit upside moves, maintaining a bearish near-term outlook as the price stays under pressure in the lower half of the Bollinger envelope. A Relative Strength Index (RSI) reading of 37.5, below the neutral threshold of 50, points to continued downward pressure rather than exhaustion from oversold conditions.

The lower Bollinger band, close to 0.5525, provides the first downside support, where sellers may pause to review their positions. Any recovery would initially face resistance at the middle band around 0.5630, ahead of the upper band at 0.5730. Further away, the 100-day SMA at 0.5750 presents another bearish hurdle; a move back above it would be needed to ease the prevailing negative outlook.

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