NZD/USD Slips as Hawkish Fed Weighs Ahead of US PMI

Key Moments

NZD/USD Slips as Fed Rhetoric Supports the Greenback

NZD/USD comes under pressure in early European trading on Wednesday, sliding toward 0.5710 as the US Dollar gains traction. A series of firm messages from US Federal Reserve officials about persistent inflation are lending support to the greenback, putting the New Zealand Dollar on the defensive.

Participants are now focused on the preliminary US Purchasing Managers’ Index (PMI) readings due later on Wednesday, looking for fresh direction for the pair.

Market Re-Pricing Fed Expectations

Investors are increasingly factoring in the risk of further tightening from the Federal Reserve after policymakers signaled that additional rate increases remain on the table if inflation fails to moderate. Based on the CME FedWatch tool, traders are assigning about a 53.1% probability to a rate increase of at least 25 bps at the Fed’s October meeting, up from 48.7% one week earlier.

Fed Officials Emphasize Inflation Risks

Boston Federal Reserve President Susan Collins on Tuesday backed the central bank’s recent decision to raise rates, citing concerns that inflation could remain above target. Collins stated that she supported the move “in the face of risks that future inflation will be above the 2% target” and added,

“I now see an increased likelihood of future scenarios in which inflation remains notably above 2%,” she added.

In a similar tone, St. Louis Fed President Alberto Musalem remarked that further rate hikes may still be needed to bring inflation in line with the Fed’s goal.

Geopolitical Focus: Trump-Xi Summit in View

Attention is also turning to a closely watched meeting between US President Donald Trump and Chinese President Xi Jinping on Thursday. Markets view the summit as crucial for stabilizing a relationship strained by a range of issues.

Any constructive outcome from the Trump-Xi gathering could prove supportive for the New Zealand Dollar, given New Zealand’s strong trade ties with China and the Kiwi’s sensitivity to Chinese economic developments.

RBNZ Hawkishness Boosts Kiwi in Broader Context

Strategists at Brown Brothers Harriman (BBH) note that the New Zealand Dollar is “outperforming most major currencies” after Reserve Bank of New Zealand (RBNZ) Governor Anna Breman delivered a distinctly hawkish message. BBH highlights that her remarks have lifted market-implied odds of a “25bps hike to 3.00% at the next October 28 meeting” from “57% to 73%.”

According to BBH, Breman also flagged elevated inflation risks from energy markets, emphasizing 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 release scheduled for October 21, BBH underscores that the RBNZ still projects some easing in price pressures, as it “forecasts headline CPI inflation to ease to 3.9% y/y vs. 4.1% in Q2.”

Fed Sentiment Metrics Point to Hawkish Bias

Collins’s latest comments have been assessed as significantly more hawkish than usual, with an FXS Speechtracker score of 8.1 compared to a historical average of 6.6. This is interpreted as signaling stronger determination to contain inflation.

Her explicit endorsement of the recent rate hike, combined with her warning about the increased chance that inflation will stay “notably above 2%,” and the backdrop of a firmer labor market, is reinforcing the view that Fed policy could remain restrictive for an extended period. This higher-for-longer stance is viewed as supportive for the US Dollar.

The FXS Fed Sentiment Index climbed by 0.53 points to 150.49, placing it firmly in hawkish territory well above the neutral 100 level. This move, in line with the high FXS Speechtracker score, indicates that Fed communication is tilting more hawkish and is likely to underpin US yields and the Dollar in the near term.

NZD/USD Technical Picture: Bias Remains to the Downside

From a technical standpoint, NZD/USD continues to trade with a bearish tone on the daily chart. The pair is holding below both the 20-period Bollinger middle band and the 100-day moving average, signaling persistent downside pressure.

Price action is leaning on the lower edge of the recent range, while the 14-period Relative Strength Index around 32 is flirting with oversold territory. This suggests that while selling momentum remains in control, it may be approaching a point of fatigue.

On the upside, the first notable hurdle is at 0.5815 at the Bollinger middle band, followed by the 100-day moving average at 0.5830. A more substantial cap to any rebound is seen near the Bollinger upper band at 0.5970. On the downside, support is located at the lower Bollinger band at 0.5660, which could temporarily slow further losses or, if broken, open the door to a deeper decline.