New Zealand Dollar declines to near 0.5700 on hawkish Fed remarks ahead US PMI data
- NZD/USD faces some selling pressure to near 0.5710 in Wednesday’s early European session.
- Hawkish remarks from Fed officials lift the US Dollar and create a headwind for the pair.
- Trump-Xi Jinping summit will be closely watched on Thursday.
The NZD/USD pair declines to around 0.5710 during the early European trading hours on Wednesday. Hawkish rhetoric from US Federal Reserve (Fed) officials regarding sticky US inflation provides some support to the US Dollar (USD) against the New Zealand Dollar (NZD). Traders await the preliminary reading of the Purchasing Managers’ Index (PMI) from the US later on Wednesday for fresh impetus.
Markets expect further tightening from the US central bank as Fed policymakers flagged the possibility of more hikes if inflation does not ease. Traders are now pricing in roughly a 53.1% chance for a rate hike of at least 25 bps at the Fed's October meeting, according to the CME FedWatch tool, up from 48.7% a week earlier.
Boston Federal Reserve (Fed) President Susan Collins said on Tuesday that she supported the US central bank's decision last week to lift interest rates in the face of risks that future inflation will be above the 2% target. "I now see an increased likelihood of future scenarios in which inflation remains notably above 2%,” she added.
Meanwhile, St. Louis Fed President Alberto Musalem said that additional rate increases may be necessary to achieve the Fed’s inflation target.
Traders will closely monitor a high-stakes meeting between US President Donald Trump and Chinese President Xi Jinping as the two leaders seek stability in a relationship under pressure over wide-ranging issues. Any positive developments surrounding the Trump-Xi Summit could boost the China-proxy Kiwi as China is a major trading partner of New Zealand.
NZD rallies as RBNZ hawkish tone lifts rate hike odds
Strategists at Brown Brothers Harriman highlight that the New Zealand Dollar is “outperforming most major currencies” after RBNZ Governor Anna Breman delivered notably hawkish remarks. According to BBH, her comments have pushed market-implied odds of a “25bps hike to 3.00% at the next October 28 meeting” higher, with probabilities rising “from 57% to 73%.”
BBH notes that Breman also underscored the inflation risks stemming from energy markets, stressing that “if higher oil prices persist, they are expected to result in somewhat higher near-term inflation than we assumed in the September Statement.” With New Zealand’s Q3 CPI due on October 21, BBH points out that the RBNZ still expects some moderation, as it “forecasts headline CPI inflation to ease to 3.9% y/y vs. 4.1% in Q2.”
Collins flags stronger labor market and persistent inflation risks, underpinning Dollar support
Fed’s Collins delivered a notably more hawkish tone, with an FXS Speechtracker score of 8.1 versus a historical average of 6.6, signaling a firmer commitment to restraining inflation. The explicit support for the latest rate hike and the warning about an increased likelihood of inflation staying “notably above 2%,” alongside a stronger labor market backdrop, reinforce expectations that policy will remain somewhat more restrictive for longer. This combination of persistent inflation risks and improved labor market footing is supportive for the Dollar, as markets price in a higher-for-longer rate path.
The FXS Fed Sentiment Index rose by 0.53 points to 150.49, firmly in hawkish territory well above the neutral 100 mark. The move, aligned with the elevated FXS Speechtracker score, confirms that Fed communication is skewing more hawkish, likely bolstering Dollar yields and keeping upward pressure on the currency in the near term.
Technical Analysis: NZD/USD retains a negative outlook in the near term
In the daily chart, NZD/USD maintains a bearish near-term tone as spot holds beneath the 20-period Bollinger middle band and the 100-day moving average (MA). The pair is pressing the lower end of its recent range, while the Relative Strength Index (14) around 32 flirts with oversold territory, hinting that downside momentum is still dominant but could be nearing exhaustion.
On the topside, initial resistance is located at the Bollinger middle band at 0.5815, followed by the 100-day MA at 0.5830, with the Bollinger upper band near 0.5970 reinforcing a broader cap to any recovery attempts. On the downside, the lower Bollinger band at 0.5660 forms the next notable support area, where sellers could pause or risk a deeper slide if this structural floor gives way.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.