New Zealand Dollar slips below 0.5700 amid RBNZ rate hike odds, with CPI inflation data in focus

• At around 0.5680, NZD/USD trades lower early in Wednesday’s Asian session.
• Swaps data put the probability of an October RBNZ rate rise at 80%, up from previous market pricing.
• Following comments by the Fed Chair, traders pared back their expectations for an October interest rate increase.

New Zealand’s third-quarter (Q3) Consumer Price Index (CPI) inflation figures, due later on Thursday, are prompting caution in markets. Against that backdrop, NZD/USD edges down towards 0.5680 during Wednesday’s Asian trading, ending a four-day run of gains.

A modest easing in New Zealand’s third-quarter inflation is expected by economists, although any relief may prove temporary. Higher oil prices are driving a renewed acceleration in the final three months of the year, bolstering the argument for interest rate increases. Forecasts point to annual CPI inflation of 3.8% in Q3, against 4.1% in Q3. The quarterly rate is expected to slow from 1.5% in Q2 to 0.8% in Q3.

For the Reserve Bank of New Zealand’s (RBNZ) policy meeting next week, swap market pricing now implies a nearly 80% probability of an interest rate increase to 3.00%.

Oil prices and the currency posed upside risks to the RBNZ’s Q4 outlook, Chief Economist Paul Conway said last week. While describing the direction of interest rates as “is most likely up”, Conway stressed that the October decision remained “wide open.”

By contrast, expectations of an October Federal Reserve (Fed) rate increase have been scaled back following comments from Chairman Kevin Warsh. Speaking at the IMF’s annual meetings in Bangkok last week, Warsh gave no indication of the likely outcome of this month’s FOMC meeting. He did, however, say that inflation exceeding expectations had not altered his assessment of the US economy.

According to the CME FedWatch Tool, current market pricing puts the probability of unchanged interest rates next week at 83.9%, alongside a 90% likelihood of a rate increase in December.

New Zealand Dollar gains support from RBNZ hike expectations as inflation is forecast above target

With New Zealand’s Q3 CPI release due Wednesday, Brown Brothers Harriman strategists expect the figures to remain broadly in line with official forecasts. They note that “headline CPI is expected at 0.8% q/q (RBNZ projection: 0.8%) vs. 1.5% in Q2 to be up 3.8% y/y (RBNZ projection: 3.9%) vs. 4.1% in Q2.” In their assessment, “above target inflation argues for additional RBNZ rate hikes and offers NZD support,” while current swaps curve pricing implies “80% odds of a 25bps RBNZ rate hike to 3.00% on October 28.”

Warsh leaves Fed decisions open while highlighting investment growth and AI

A FXS Speechtracker reading of 5.6/10, compared with a historical average of 6.1/10, characterised Fed Chair Warsh’s remarks as moderately constructive but cautious, with a slightly softer tone. His acknowledgement of being "over-scarred" by the Global Financial Crisis highlights an awareness of risk. At the same time, he pointed to structural growth and a surge in investment underpinned by "good policies," without pre-judging the forthcoming October and December meetings. Warsh’s focus on AI, both as a driver of demand and a means of improving confidence in data, together with planned field hearings and task forces, suggests a forward-looking Fed. Its attention remains on both the upside potential for growth and possible negative tail risks to financial stability.

Despite the slightly softer tone registered by the FXS Speechtracker, the broader policy stance remained firmly hawkish: the FXS Fed Sentiment Index recorded a 0.00-point change, holding at an elevated 127.51. For currency markets, the strong investment narrative, commitment to price stability and high index reading together suggest continued support for the Dollar. These factors point to expectations of a watchful Fed that has yet to signal a dovish turn.

Technical Analysis: NZD/USD remains bearish below the 100-day SMA

At 0.5681 on the daily chart, NZD/USD remains below both the 100-day simple moving average (SMA) at 0.5774 and the upper Bollinger Band at 0.5691, preserving a bearish short-term outlook. This overhead cluster continues to limit advances, with underlying support coming from the middle Bollinger Band near 0.5631. Meanwhile, a recovery in the Relative Strength Index (RSI) to neutral territory at 51.7 points to steadier momentum rather than a decisive bullish turn.

The upper Bollinger Band around 0.5691 provides the first resistance on any advance, ahead of the 100-day SMA at 0.5774. Until the latter is regained, the broader bias remains to the downside. Initial support lies at the middle Bollinger Band at 0.5631; a break below it would bring the lower Bollinger Band near 0.5572 into view as the next downside target.

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