Why is the New Zealand Dollar retreating despite rising RBNZ rate hike expectations?

• NZD/USD loses 0.25% on Monday even as markets expect additional monetary tightening in New Zealand.
• A third successive interest rate increase is expected by markets, which would take the benchmark rate to 3.0%.
• Pressure persists on the US Dollar as markets await the Fed's monetary policy announcement and major US economic releases.

Selling pressure keeps NZD/USD around 0.5680 at the time of writing on Monday, down 0.25%, even as expectations build for an interest rate increase in New Zealand. With investors awaiting several major central bank decisions and economic releases this week, the New Zealand Dollar (NZD) is finding little support from the prospect of additional monetary tightening by the Reserve Bank of New Zealand (RBNZ).

Another rate increase has become more widely expected ahead of the RBNZ's forthcoming policy announcement. TD Securities says it has revised its near-term outlook for the central bank, explaining that “we had forecast the RBNZ to pause at its October meeting. We now forecast the Bank to hike the Official Cash Rate 25bps at this week's meeting to 3%.” While the expected timing has changed, the bank's strategists stress that “nonetheless, we stick to our call for 25bps hikes in December and February. Accordingly, this pushes our terminal rate from 3.25% to 3.50%.”

Although New Zealand's latest figures showed a slightly larger-than-expected easing in third-quarter inflation, economists expect consumer price growth to pick up again in the fourth quarter. That could lift inflation above 4%, exceeding the RBNZ's 1% to 3% target range.

To curb price pressures, the central bank could respond to this outlook with further monetary tightening, potentially lending support to the New Zealand Dollar.

Meanwhile, expectations of unchanged interest rates at the Federal Reserve's (Fed) October 27-28 policy meeting continue to weigh on the US Dollar (USD).

Markets assign a 90% probability to rates remaining unchanged in October, according to the CME FedWatch tool. For December, the probability of another interest rate increase is 79%.

NZD/USD could benefit from this possible policy divergence between the two central banks, especially if the RBNZ reaffirms its intention to raise rates further.

Also in focus for investors are forthcoming US data, notably the Fed's preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index, alongside preliminary third-quarter Gross Domestic Product (GDP) figures. By shaping expectations for the future course of US interest rates, these releases could in turn affect the US Dollar's direction.

NZD/USD technical analysis: Can support hold as resistance limits gains?

Trading at 0.5687 on the one-hour chart, NZD/USD remains between its key moving averages. Support from the 200-period simple moving average (SMA) at 0.5665 lies below the pair, while the 100-period SMA at 0.5689 sits just above it. This positioning points to limited intraday upside within a broader structure that remains supported. Following the recent retreat from the 0.5700 area, momentum appears consolidative: the Relative Strength Index (14) reads 47.2, marginally below the neutral 50 mark.

Any advance would first encounter the 100-period SMA at 0.5689, with the horizontal resistance level at 0.5710 next in line. A decline would initially meet horizontal support at 0.5668 and then the 200-period SMA at 0.5665, where buyers would be expected to protect the wider intraday range.

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