New Zealand Dollar approaches 0.5700 as RBNZ rate hike prospects lend support

• Buying interest lifts NZD/USD towards 0.5690 during Asian trading on Friday.
• To bring inflation under control, the RBNZ is poised to increase interest rates aggressively.
• A Fed rate pause at the October policy meeting carries a market-implied probability of around 92.8%.

Support for the New Zealand Dollar (NZD) against the US Dollar (USD) lifts NZD/USD to around 0.5690 in Friday’s Asian session, as expectations build for a Reserve Bank of New Zealand (RBNZ) rate increase. Attention later on Friday will turn to October’s preliminary US S&P Global Purchasing Managers Index (PMI) reading.

Despite a softer Consumer Price Index (CPI) inflation reading, the Kiwi advances against the USD. Inflation is expected by many analysts to accelerate well above 4% in the fourth quarter, potentially remaining outside the RBNZ’s 1-3% target band for longer than the central bank previously anticipated.

According to Bloomberg, market pricing now indicates roughly an 85% probability of a quarter-point increase in the RBNZ’s Official Cash Rate (OCR) to 3.0% at its October meeting. The likelihood of the rate reaching 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 scaled back after Federal Reserve (Fed) Chair Kevin Warsh declined to provide a clear indication of when the next increase might occur.

The CME FedWatch Tool showed that markets put the probability of unchanged Fed interest rates next week at 92.8%. For December, the implied chance of a rate increase stands at 80.5%.

Can RBNZ tightening lift NZD as the Fed stays hawkish?

New Zealand’s inflation conditions and commodity trends still favour a hawkish RBNZ, according to strategists at Brown Brothers Harriman. In their assessment, “above target inflation and still elevated oil prices” support additional rate increases. On market expectations, they 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%.” BBH nevertheless sees a more limited benefit for the currency, emphasising that “nonetheless, NZD/USD upside is constrained because Fed tightening curbs the scope for policy convergence.”

What do Warsh’s investment and AI remarks signal without a policy commitment?

At 5.6/10 on the FXS Speechtracker, Fed Chair Warsh’s speech came in modestly below the historical average of 6.1/10. The score points to a slightly less impactful tone than the established baseline, despite broadly positive comments on structural growth and a surge in investment. His acknowledgement of being “over-scarred from the global financial crisis” highlights an enduring cautious bias, even as he observes that the world has aligned with the Fed’s expectations and draws attention to policy-led investment strength. By repeatedly declining to prejudge the October and December meetings, Warsh reaffirmed a data-dependent approach and offered limited near-term direction for the Dollar. His emphasis on AI as a source of demand with uncertain employment consequences, alongside forthcoming field hearings and task forces, suggests a forward-looking yet exploratory approach to technology-related opportunities and risks for monetary policy and financial stability.

With a move of 0.00 points, the FXS Fed Sentiment Index held at an elevated 127.51. That unchanged reading confirms a firmly hawkish overall policy tone, although the speech scored below the historical average on the FXS Speechtracker. The steady index suggests that market perceptions of the Fed’s hawkish bias and the underlying support for the Dollar were not materially changed by Warsh’s comments, despite his caution and lack of commitment to a specific rate path.

Technical Analysis: Can NZD/USD shake off its bearish bias below the 100-day SMA?

Trading below the 100-day simple moving average (SMA) leaves NZD/USD with a bearish near-term bias on the daily chart. Some short-term stabilisation following the recent decline is indicated by the price holding above the Bollinger Bands’ 20-day middle line. However, nearby overhead supply is already evident at the upper band. At 52.8, the Relative Strength Index (14) has returned to neutral territory, pointing more to easing oversold conditions than to a decisive bullish turn.

The Bollinger upper band, around 0.5705, provides the first resistance, ahead of the 100-day SMA at 0.5770. As long as the price remains beneath 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 break below that latter area would bring the broader downtrend towards fresh lows back into play.

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