New Zealand Dollar softens below 0.5700 on RBNZ rate hike odds, CPI inflation data in focus

- NZD/USD weakens to around 0.5680 in Wednesday’s early Asian session.
- Investor pricing of an RBNZ October hike has lifted to an 80% chance, swaps data showed.
- Remarks from Fed Chair prompted traders to scale back expectations of an October rate hike.
The NZD/USD pair drifts lower to near 0.5680, snapping the four-day winning streak during the Asian trading hours on Wednesday. Markets turn cautious ahead of New Zealand’s Consumer Price Index (CPI) inflation data for the third quarter (Q3), which is due later on Thursday.
Economists expect New Zealand inflation to ease slightly in the third quarter, but the respite might be short-lived as rising oil prices drive an acceleration in the final three months of the year, supporting the case for rate hikes. The CPI is projected to show a rise of 3.8% YoY in Q3, compared to 4.1% in Q3. On a quarterly basis, the CPI inflation is forecast to fall to 0.8% in Q3 from 1.5% in Q2.
Swap markets are now pricing in nearly an 80% chance of a Reserve Bank of New Zealand (RBNZ) interest rate hike to 3.00% at its upcoming policy meeting next week.
RBNZ Chief Economist Paul Conway said last week that there was upside risk to its Q4 outlook because of oil prices and the currency. Conway added the path for interest rates “is most likely up” but said the October decision remains “wide open.”
On the other hand, traders reduce their bets on a Federal Reserve (Fed) rate hike in October following remarks from Chairman Kevin Warsh. During the IMF’s annual meetings in Bangkok last week, Warsh avoided signalling the outcome of this month’s FOMC meeting but noted that hotter-than-expected inflation had not changed his assessment of the US economy.
Markets currently assign an 83.9% probability to the central bank holding interest rates steady next week, while pricing in a 90% chance of a rate hike in December, the CME FedWatch Tool showed.
New Zealand inflation seen staying above target as RBNZ hike odds support the Dollar
Strategists at Brown Brothers Harriman highlight that New Zealand’s Q3 CPI data due Wednesday are expected to track closely with official projections, noting 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.” They argue that “above target inflation argues for additional RBNZ rate hikes and offers NZD support,” with the swaps curve currently pricing in “80% odds of a 25bps RBNZ rate hike to 3.00% on October 28.”
Warsh flags investment surge and AI focus but keeps Fed options open
Fed Chair Warsh delivered a moderately constructive but cautious message, with the FXS Speechtracker score at 5.6/10, slightly softer relative to the historical average of 6.1/10. The admission of being “over-scarred” from the Global Financial Crisis underscores a risk-aware bias even as Warsh highlights structural growth and an investment surge driven by “good policies,” while refusing to pre-judge upcoming October and December meetings. The emphasis on AI as a demand-side force and as a tool to improve data confidence, alongside planned field hearings and task forces, points to a forward-looking Fed that is attentive to both upside growth dynamics and potential negative tailside risks to financial stability.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 127.51, signaling that the speech leaves the overall stance firmly in hawkish territory despite the slightly softer tone captured by the FXS Speechtracker. For FX markets, the combination of strong investment narrative, commitment to price stability, and high index level suggests the Dollar remains supported by expectations of a vigilant Fed that is not yet signaling a dovish pivot.
Technical Analysis: NZD/USD retains a negative tone under the 100-day SMA
In the daily chart, NZD/USD trades at 0.5681, keeping a bearish near-term bias as the pair holds below the 100-day simple moving average (SMA) at 0.5774 and beneath the upper Bollinger Band at 0.5691. Price action remains capped by this overhead cluster, while the middle Bollinger Band near 0.5631 acts as underlying support; the Relative Strength Index (RSI) at 51.7 has recovered to neutral territory, suggesting stabilizing momentum rather than a clear bullish shift.
On the topside, initial resistance is seen at the upper Bollinger Band around 0.5691, followed by the 100-day SMA at 0.5774, which reinforces the broader downside bias as long as it remains unreclaimed. On the downside, immediate support is provided by the middle Bollinger Band at 0.5631, with a break exposing the lower Bollinger Band near 0.5572 as the next bearish target.
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