New Zealand Dollar gains ground to near 0.5700 as RBNZ rate hike bets rise

The NZD/USD pair gathers strength to around 0.5700 during the early Asian session on Monday. The New Zealand Dollar (NZD) edges higher against the US Dollar (USD) amid growing expectations of a Reserve Bank of New Zealand (RBNZ) rate hike. Traders will closely monitor the RBNZ and US Federal Reserve (Fed) interest rate decisions later on Wednesday.

Many analysts see inflation in New Zealand accelerating well above 4% in the fourth quarter and potentially staying outside the 1-3% band the RBNZ targets for longer than the central bank had previously projected. New Zealand’s central bank is widely expected to deliver another 25 basis points (bps) hike to 3.00% at its upcoming policy meeting on Wednesday.

“Higher for longer inflation is a major headache for the RBNZ,” said Mark Smith, senior economist at ASB Bank in Auckland, who sees inflation above 3% until the fourth quarter next year and tips a rate hike on October 28. “We expect the RBNZ to acknowledge that they have more work to do and to maintain a conditional tightening bias,” Mark added.

The Fed raised its benchmark rate in September for the first time in about three years. Expectations for further rate increases began to shift after Fed Chair Kevin Warsh repeatedly struck a cautious tone. Warsh said at the International Monetary Fund’s (IMF) annual meeting that he would not prejudge future rate decisions.

Meanwhile, Fed Vice Chair Philip Jefferson and Governor Christopher Waller stated that there was no need to rush further hikes. According to the CME FedWatch tool. the implied probability of an October rate hike fell from as high as 70% to around 9.4%.

NZD outlook supported by persistent inflation but Fed tightening caps kiwi gains

Strategists at Brown Brothers Harriman note that, despite the softer headline CPI print, “underlying inflation points to persistent price pressure.” They highlight that the RBNZ’s sectoral factor model “printed at 2.8% y/y for a second straight quarter, near the top of its 1-3% target range,” while “CPI ex. petrol remained at 3.2% y/y for a fourth consecutive quarter,” underscoring the stickiness of core price dynamics.

Against this backdrop, BBH argues that “above target inflation and still elevated oil prices argue for additional RBNZ rate hikes.” They point out that “the swaps curve price in 85% odds of a 25bps RBNZ rate hike to 3.00% on October 28 and more than 100bps of tightening over the next twelve months to 3.75% – near the upper end of the RBNZ’s estimated neutral range of 2.20%-4.10%.” However, BBH cautions that “nonetheless, NZD/USD upside is constrained because Fed tightening curbs the scope for policy convergence,” limiting the kiwi’s ability to fully capitalize on the domestic hawkish backdrop.

Warsh flags investment surge and AI focus but avoids policy pre-commitment

Fed Chair Warsh’s speech scores 5.6/10 on the FXS Speechtracker, modestly softer relative to the historical average of 6.1/10, reflecting a cautious tone despite upbeat references to structural growth and an investment surge. The remark about being “over-scarred from the global financial crisis” underscores a lingering bias toward risk management and financial stability, even as Warsh highlights AI and private-sector investment as key upside drivers for the real economy. Warsh’s refusal to prejudge the October and December meetings and emphasis on crystallizing data on output, employment, and inflation signal a data-dependent stance that keeps Dollar rate expectations flexible but anchored in a commitment to price stability.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-hawkish level of 127.51, indicating that the speech did not materially shift market perceptions of the Fed’s policy bias. The combination of a high index level and a slightly below-baseline speech score suggests that, compared to the established baseline, Warsh’s remarks maintain a hawkish policy backdrop for the Dollar without adding fresh tightening signals.

Technical Analysis: NZD/USD remains capped under the 100-day SMA

In the daily chart, NZD/USD keeps a bearish tone as spot remains capped beneath the 100-day moving average (MA) and the upper Bollinger band. Price holds above the Bollinger middle band, suggesting some near-term stabilization within the broader downtrend, while the Relative Strength Index (14) at 54.4 shows neutral-to-positive momentum that mildly tempers immediate selling pressure without overturning the bearish structural bias.

On the topside, initial resistance emerges at the upper Bollinger band around 0.5710, ahead of a stronger barrier at the 100-day MA at 0.5770, where sellers are likely to reassert control if the pair attempts a recovery. On the downside, support is seen at the Bollinger middle band near 0.5635, with a break exposing the lower Bollinger band at 0.5560, a deeper demand area that would come into view if bearish pressure resumes decisively.