New Zealand Dollar edges lower as Fed rate hike bets and Iran tensions underpin USD

The NZD/USD pair attracts some sellers during the Asian session on Monday and currently trades near the 0.5870 region, down around 0.15% for the day. Spot prices, however, remain confined within Friday's broader range, warranting some caution for aggressive bearish traders.

Friday's better-than-expected US Nonfarm Payrolls (NFP) report lifted market bets for a Federal Reserve (Fed) interest rate hike at the September 15-16 meeting amid inflation risks stemming from elevated energy prices. Apart from this, a further escalation of tensions between the US and Iran turned out to be another factor underpinning the safe-haven Greenback, which, in turn, is seen exerting some pressure on the NZD/USD pair.

The New Zealand Dollar (NZD), on the other hand, continues with its relative underperformance on the back of a dovish tilt in the Reserve Bank of New Zealand’s (RBNZ) policy projections. As was widely expected, the RBNZ raised its official cash rate for the second consecutive meeting last week and indicated that the cash rate may need to increase further. However, the forward guidance was interpreted as more cautious.

Kiwi pressured as RBNZ signals less need for further tightening

Brown Brothers Harriman’s Elias Haddad highlights that, while the RBNZ delivered a 25 bps hike to 2.75%, the tone of the statement was notably cautious, with the bank stressing that “this decision reduces the risk that the OCR needs to increase by more later.” Haddad notes that this guidance, alongside an unchanged OCR track peaking near 3.25% versus market expectations closer to 4.00%, underscores scope for a dovish repricing that could continue to weigh on the New Zealand Dollar.

Meanwhile, RBNZ Governor Anna Breman stressed that there is no predetermined path for monetary policy and that the timing of any further rate hike remains highly uncertain. This, in turn, contributes to capping the NZD/USD pair's recent bounce from the 0.5800 mark, or an over one-month low, touched last Wednesday. Traders, however, opt to wait for this week's US inflation figures before placing directional bets.

NZD/USD daily chart

Technical Analysis

The NZD/USD pair holds a mild bullish bias above the 200-day Exponential Moving Average (EMA) at 0.5855 and the 38.2% level at 0.5848. Moreover, last week's bounce from the 50% retracement level at 0.5805 suggests that buyers retain control above these structural floors.

On the topside, immediate resistance appears at the 23.6% Fibo. retracement at 0.5901, with a stronger barrier aligning with the recent swing high near 0.5986. On the downside, initial support is seen at the 200-day EMA at 0.5855, followed by a dense Fibonacci support zone at 0.5848 and 0.5805. A break below there would expose deeper retracement levels at 0.5762, 0.5701 and ultimately the prior base around 0.5624.