Key Moments
- NZD/USD trades near 0.5680, halting a four-session advance ahead of New Zealand’s Q3 CPI report due Thursday.
- Swaps markets price close to an 80% probability of a 25 bps RBNZ rate increase to 3.00% at next week’s meeting.
- Markets see an 83.9% chance the Fed holds rates steady next week, while assigning a 90% probability to a December hike.
NZD Under Pressure Ahead of New Zealand CPI
NZD/USD retreats toward 0.5680 in early Asian trading on Wednesday, ending a four-day run of gains. The move comes as traders turn defensive before New Zealand’s third-quarter Consumer Price Index (CPI) release, scheduled for Thursday.
Economists anticipate a modest moderation in New Zealand’s inflation during the third quarter, but also warn that any relief could be fleeting if higher oil prices drive a renewed pickup in price pressures later in the year. Consensus expectations point to CPI rising 3.8% year-on-year in Q3, compared with 4.1% in the previous quarter. On a quarterly basis, CPI inflation is forecast to slow to 0.8% in Q3 from 1.5% in Q2.
Interest-rate swaps now imply close to an 80% probability that the Reserve Bank of New Zealand (RBNZ) delivers a rate hike to 3.00% at its policy meeting next week.
Last week, RBNZ Chief Economist Paul Conway flagged upside risks to the central bank’s fourth-quarter outlook stemming from oil prices and the exchange rate. He stated that the path for interest rates “is most likely up” but emphasized that the October decision remains “wide open.”
Fed Expectations Ease After Warsh Comments
On the U.S. side, investors have pared back expectations for an October Federal Reserve rate hike following remarks from Chair Kevin Warsh. Speaking at the IMF’s annual meetings in Bangkok last week, Warsh refrained from indicating the outcome of this month’s FOMC gathering and said that hotter-than-expected inflation had not altered his assessment of the U.S. economic backdrop.
According to market pricing cited from the CME FedWatch Tool, traders currently see an 83.9% likelihood that the Fed leaves interest rates unchanged at its meeting next week, while assigning a 90% chance of a rate increase in December.
Strategists See Persistent NZ Inflation Supporting Hike Odds
Analysts at Brown Brothers Harriman point out that New Zealand’s Q3 CPI data due Wednesday are expected to closely match the RBNZ’s own 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 contend that “above target inflation argues for additional RBNZ rate hikes and offers NZD support,” while highlighting that the swaps curve is currently discounting “80% odds of a 25bps RBNZ rate hike to 3.00% on October 28.”
| Indicator | Q2 | Q3 Expectation | RBNZ Projection |
|---|---|---|---|
| Headline CPI q/q | 1.5% | 0.8% | 0.8% |
| Headline CPI y/y | 4.1% | 3.8% | 3.9% |
| RBNZ policy rate post-October meeting (implied) | – | 3.00% (80% odds of 25 bps hike) | – |
Warsh Emphasizes Investment and AI While Keeping Policy Path Flexible
Fed Chair Warsh delivered a tone that was positive but guarded, with the FXS Speechtracker assigning a score of 5.6/10, marginally below the historical average of 6.1/10. His acknowledgment of being “over-scarred” by the Global Financial Crisis reflects a cautious stance, even as he underscores structural growth drivers and an upswing in investment linked to “good policies,” while declining to pre-commit on decisions at the October and December meetings.
His focus on artificial intelligence as both a source of demand and a means to enhance the reliability of economic data, together with references to planned field hearings and task forces, depicts a central bank looking ahead to both stronger growth prospects and potential downside risks to financial stability.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated reading of 127.51, indicating that the overall stance remains solidly hawkish despite the modestly softer nuance captured by the FXS Speechtracker. For currency markets, the combination of a robust investment narrative, firm commitment to price stability, and a high sentiment index suggests the Dollar continues to be backed by expectations of a vigilant Fed that is not yet signaling a dovish turn.
NZD/USD Technical Picture: Bias Stays Bearish Below 100-Day SMA
From a technical standpoint, NZD/USD is trading around 0.5681 on the daily chart and maintains a negative short-term tone while it remains under the 100-day simple moving average (SMA) at 0.5774 and below the upper Bollinger Band at 0.5691. This resistance zone continues to cap upside attempts, whereas the middle Bollinger Band, situated near 0.5631, offers immediate downside support. The Relative Strength Index (RSI) at 51.7 has recovered into neutral territory, indicating stabilizing momentum rather than a decisive shift toward bullish conditions.
On the topside, initial resistance is located near the upper Bollinger Band at 0.5691, followed by the 100-day SMA at 0.5774. As long as this latter level is not reclaimed, the broader bearish bias remains intact. On the downside, the middle Bollinger Band at 0.5631 serves as the first key support; a break below it would open the way for a move toward the lower Bollinger Band around 0.5572 as the next downside objective.
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