RBNZ rate hold sends New Zealand Dollar sharply lower ahead of Fed decision

• A decline of nearly 1% leaves the New Zealand Dollar sharply lower on Wednesday after an unexpected monetary policy decision.
• At 2.75%, the Reserve Bank of New Zealand's benchmark interest rate remains unchanged, defying market expectations of a 25-basis-point increase.
• Ahead of the Federal Reserve's monetary policy announcement, the US Dollar continues to advance.

A 0.98% decline on Wednesday takes NZD/USD to around 0.5625 at the time of writing. Heavy selling weighs on the New Zealand Dollar (NZD) following the Reserve Bank of New Zealand's (RBNZ) unexpected decision to hold its benchmark interest rate steady.

An unchanged Official Cash Rate (OCR) of 2.75% was announced by the RBNZ on Wednesday, confounding widespread investor expectations of a 25-basis-point (bps) rise to 3.00%. With further monetary tightening in October already priced into markets, the decision sent the Kiwi sharply lower.

The decision to leave rates on hold did not, however, signal a retreat from the New Zealand central bank's hawkish stance. Its monetary policy statement suggested that additional interest rate rises would probably be needed, with the economic outlook determining their timing and scale.

Following September's 25-basis-point increase, markets widely anticipate that the Federal Reserve (Fed) will keep interest rates within the 3.75%-4.00% range. Investors are now awaiting its monetary policy announcement, due later on Wednesday.

Just a 9% probability of a further rate rise at this meeting is indicated by the CME FedWatch tool. Attention is consequently centred on comments from Fed Chair Kevin Warsh for fresh indications of the path of US interest rates over the remainder of the year.

While expectations of additional monetary tightening in New Zealand could cushion the Kiwi's losses, a hawkish signal from the Fed could lend further support to the US Dollar (USD). This would prolong the downward pressure on NZD/USD.

NZD/USD technical analysis points to a bearish near-term bias

Trading at 0.5622 on the four-hour chart, NZD/USD retains a bearish short-term bias below the 100-period simple moving average (SMA) at 0.5643 and the 200-period SMA at 0.5666. Nearby horizontal resistance at 0.5630 also sits just above the pair, adding to overhead selling pressure. A recovery in the Relative Strength Index (14) from oversold territory towards the low-30s suggests that downward momentum is moderating, though a reversal has yet to emerge.

Any move higher would first encounter resistance at 0.5630, ahead of the 100-period SMA at 0.5643 and the 200-period SMA at 0.5666. Should buyers sustain a corrective rebound, a more substantial obstacle lies at 0.5710. Below current levels, the previous horizontal floor at 0.5564 provides the next significant support. A break beneath it would open the way for the broader decline to resume and leave the Kiwi vulnerable to further losses.

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