Weak USD cushions New Zealand Dollar losses as buying interest remains subdued

The modest NZD/USD rebound from its post-RBNZ swing low struggles to gather momentum.
USD weakness offers the pair support as bond yields retreat and hopes of diplomacy with Iran improve.
Further declines remain likely as underlying fundamentals continue to favour bearish traders.

Selling pressure returns to NZD/USD in Friday's Asian session, trimming the previous day's modest gains and interrupting its recovery from a two-week low. That low followed Wednesday's Reserve Bank of New Zealand (RBNZ) decision. Trading around the 0.5630-0.5625 region, the pair remains headed for heavy losses for the first time in three weeks.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Investors were disappointed when the RBNZ unexpectedly kept its Official Cash Rate (OCR) at 2.75%, having priced in an almost certain 25-basis-point (bps) increase. RBNZ Governor Anna Breman was among four members who favoured a pause to evaluate the lagged impact of the July and September rate hikes. Their preference outweighed the committee's tightening bias in market sentiment, putting pressure on the New Zealand Dollar (NZD). Nevertheless, a third consecutive day of selling in the US Dollar (USD) appears to provide some protection against further NZD/USD declines.

The safe-haven US Dollar is under pressure as renewed optimism over US-Iran diplomatic engagement encourages traders to unwind the geopolitical risk premium, reflected in a sharp fall in US bond yields. Caution persists, however, over the US-Iran confrontation concerning the Strait of Hormuz and intensifying hostilities between the Iran-backed Houthis and Saudi Arabia. With this uncertainty keeping crude oil prices elevated, inflation concerns are strengthening hawkish expectations for the US Federal Reserve (Fed). That backdrop could contain the USD's losses.

Traders assign roughly a 75% probability to a December increase in US borrowing costs, according to CME Group's FedWatch Tool. Thursday's US economic releases reinforced those expectations: third-quarter growth accelerated to an annualised 3.4%, while inflation increased in September. These figures support the prospect of renewed USD buying on dips. Consequently, NZD/USD still appears more likely to move lower, with any substantial rebound more likely to attract selling.

How Is the US Dollar Performing Today?

The US Dollar recorded its strongest performance against the New Zealand Dollar today. Its percentage changes against the major currencies listed are set out in the table below.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.20%	-0.15%	-0.27%	-0.15%	0.09%	0.09%	-0.48%
EUR	0.20%		0.05%	-0.09%	0.06%	0.30%	0.28%	-0.28%
GBP	0.15%	-0.05%		-0.13%	0.01%	0.25%	0.24%	-0.33%
JPY	0.27%	0.09%	0.13%		0.14%	0.37%	0.37%	-0.20%
CAD	0.15%	-0.06%	-0.01%	-0.14%		0.23%	0.23%	-0.34%
AUD	-0.09%	-0.30%	-0.25%	-0.37%	-0.23%		-0.01%	-0.56%
NZD	-0.09%	-0.28%	-0.24%	-0.37%	-0.23%	0.00%		-0.56%
CHF	0.48%	0.28%	0.33%	0.20%	0.34%	0.56%	0.56%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the US Dollar on the left and following its row across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.