Kiwi Recovers, Trades Near Low on US CPI, Risks

Key Moments

NZD/USD Attempts Rebound Amid Risk-Off Backdrop

The NZD/USD pair is reclaiming part of its recent losses around 0.5590 in early European trading on Tuesday. Despite the modest recovery, the upside appears constrained as the pair trades close to an 18-month trough in an environment dominated by elevated Middle East tensions and higher oil prices. Market participants are positioning for key US inflation data later in the week.

Risk sentiment remains fragile after Ukrainian President Volodymyr Zelenskiy accused Russia of breaching an energy ceasefire that had been announced by US President Donald Trump. At the same time, the Saudi-led coalition engaged in Yemen stated on Monday that it was confronting another wave of drone and missile attacks targeting Saudi Arabia.

Persistent conflict between Russia and Ukraine, together with intensifying strains in the Middle East, is encouraging safe-haven demand, which tends to support the US Dollar at the expense of higher-beta currencies such as the New Zealand Dollar.

US CPI in Focus as Fed Pause Expectations Are Tested

Attention now turns to Wednesday’s release of the US Consumer Price Index (CPI). Economists expect the data to back the case for continued monetary tightening, even as markets currently see the US Federal Reserve holding rates steady at its upcoming two-day meeting later this month.

Fed funds futures are assigning an implied 80.6% probability that the central bank will leave rates unchanged, compared with 82.3% on Friday, according to the CME FedWatch tool.

“Several Fed officials have pushed back against a back-to-back hike at the October 28 FOMC meeting, potentially limiting the USD’s upside,” DBS analysts wrote in a note.

Dollar Holds Near Key Index Level as Data, Fed Rhetoric Shape Outlook

Analysts at MUFG/BTMU observe that “the major foreign exchange rates have remained stable overnight with the Dollar index continuing to trade close to year-to-date levels at just above the 102.00-level.” They point out that “the recent run of softer US data (PCE deflator report for August and NFP report for September) alongside cautious comments over the need for another back-to-back hike from the Fed’s leadership have dampened expectations for another rate hike as soon as this month.”

According to MUFG/BTMU, “market expectations for the Fed to stay on hold this month will be tested by the release on Wednesday of the latest US CPI report for September.” The bank further notes that “unless there is a significant upside surprise for underlying inflation, we expect the Fed to leave rates on hold this month,” while emphasizing that “it is likely to be only a temporary pause as the Fed currently plans to hike rates again before the end of this year in December.”

Hawkish Hammack Comments Reinforce Higher-for-Longer Rate Narrative

Fed’s Hammack is delivering a notably more hawkish signal, reflected in an FXS Speechtracker score of 8.4/10 relative to a baseline of 7.5/10, indicating a stronger inclination toward tighter monetary policy. The emphasis on “interest rates need to be higher,” broad-based inflation pressures, and concerns about a potentially entrenched inflation mindset, coupled with the assessment that financial conditions are only neutral, suggests a preference for further tightening through smaller, more frequent adjustments.

Hammack’s remarks on robust demand, AI-related pressures, and unanchored pricing behavior highlight a restrictive policy stance viewed as supportive for the US Dollar and unfavorable for risk-sensitive assets.

The FXS Fed Sentiment Index climbs by 0.59 points to 138.92, remaining firmly in hawkish territory and aligned with the elevated FXS Speechtracker result. This development indicates that Federal Reserve communication is leaning more toward pre-emptive tightening, reinforcing expectations for higher-for-longer interest rates and underpinning Dollar strength versus lower-yielding currencies.

Technical Picture: NZD/USD Bias Stays Bearish Below 100-Day SMA

On the daily chart, NZD/USD maintains a negative short-term outlook as price action remains below both the 100-day simple moving average (SMA) and the middle line of the Bollinger Bands. The pair is trading only slightly above the lower Bollinger Band, signaling proximity to the recent downside boundary. The 14-day Relative Strength Index at 30.1 is hovering near oversold levels, suggesting that while selling pressure looks stretched, it still dominates.

On the upside, first resistance is located around the middle Bollinger Band near 0.5650, followed by the upper band at approximately 0.5745. The 100-day SMA at 0.5790 is seen as reinforcing a wider bearish ceiling on any rebound attempts. On the downside, the lower Bollinger Band around 0.5550 provides the first notable support; a decisive move below this level would leave the pair vulnerable to an extension of the prevailing downtrend toward new lows.